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Duke Energy Employee Advocate

Electric Deregulation - May, 2001

"Ye shall know the truth, and the truth shall make you mad." - Aldous Huxley

Executives Win – No Matter What!
Duke Energy Employee Advocate - May 31, 2001

You know that the energy executives accused of manipulating the California market are floating in cash and bonuses. What about the executives one the other end? What about the executives who had to declare bankruptcy? Not to worry. They are rolling in cash also!

The San Francisco Chronicle reports that Pacific Gas and Electric Co. is “is asking a judge's permission to award $17.5 million in additional payouts to the management team that guided the utility into bankruptcy.” Salaries would double for the chairman and many other senior executives! Just before the bankruptcy filing, $50 million in bonuses were given.

It has been said: “When elephants fight, it is the grass that suffers.” Of course, the executives are the elephants who make up (and change) the rules as they go. You know who the grass is. Some people just keep raking in the millions, while others wonder what happened to their pensions.

Energy Firms Still Face Multiple Probes
Duke Energy Employee Advocate - May 31, 2001

The energy companies accused of unparalleled greed in California are not out of the woods yet. The San Francisco Chronicle reports: “The Federal Energy Regulatory Commission, the state Public Utilities Commission, the Assembly, the Senate, the state attorney general and a phalanx of state and federal auditors all are boring into California's energy mess.”

No one has admitted any guilt, as the investigations continue.

“Attorney General Bill Lockyer has been probing the actions of the generators since August to see if they manipulated the market or engaged in unfair business practices or if their executives engaged in criminal behavior. ‘We all feel we've been taken advantage of, been gouged,’ Lockyer said. ‘The question is whether it's legal greed or illegal greed. There's no question it's greed.’ ”

Money Buys Political Access for Energy Firms
Duke Energy Employee Advocate - May 26, 2001

If you have any doubts of the political access that energy firms have purchased, check out "Power Trader Tied to Bush Finds Washington All Ears” in the New York Times.

It seems that one Mr. Lay, head of an energy trading corporation, is having a LOT of influence in Washington. Mr. Lay (is that a great name, or what?) has went as far as to conduct “interviews” with candidates for chairman of the Federal Energy Regulatory Commission! He has also submitted a “list of preferred candidates” to President Bush's chief personnel adviser.

Click the link below to see the federal interloping being performed by only one energy company:

Power Trader Tied to Bush Finds Washington All Ears

California Reamin'
Guardian Unlimited - by Greg Palast - May 22, 2001

George Bush's energy plan (if you can call it that) is not just about lining the pockets of his oil company buddies - it's about making California pay for voting Gore, writes Greg Palast

You nasty-minded readers probably believe George Bush's energy plan is just some pea-brained scheme to pay off the president's oil company buddies, fry the planet, and smother Mother Earth in coal ash, petroleum pollutants and nuclear waste.

If that's what you think, you've overlooked the vicious intent of the whole programme. It's payback time - and Bush intends to make California pay…

Keep in mind that the entire excuse for this polluters' wet dream of an 'energy plan' is that there is an energy 'crisis' in California. We are told that there is just not enough electricity and gas.

Even the Democrats and the New York Times agree that there is an energy crisis in California, which is evidence enough to conclude: There is no energy crisis in California.

In case you need more evidence, check this out. In December, the lights went out in southern California, the price of electricity jumped 1000% over the previous year and the price of natural gas jumped 1000% in one week.

Power shortage? Nope. The California power grid operator reported that, just over the California border at the 'Henry Hub' gas pipeline switching center, you could buy plentiful gas for $1 (£66p) a therm. A couple of miles down the road in California, the price was $10.

By golly, it turns out the two power merchants that controlled the biggest pipe into California simply blocked part of the tube. Result: panic, price spikes and black outs.

Market speculators made half a billion dollars on that cute little maneuver. In all, says last week's report by Dr Anjali Shiffren of the grid system, "monopoly rents," "economic withholding" and "physical withholding" were responsible for artificial shortages and excess charges of $6.2 billion last year - half the state's light bill.

In other words, California did not run out of energy, it ran out of supplies of government. Until two years ago, California regulated electric companies. Then Mr. Davis' predecessor, a Republican governor, 'de-regulated' energy, and the state became a pricing predators' picnic.

Governor Davis' own plan to end this faux crisis is a combination of re-regulating electricity prices and de-privatizing part of the power system. In other words, Davis's cure is one part realism, one part populism and one part so-she-lizm.

Texas Power trading corporations (TXU), Reliant and Enron (Bush's numero uno campaign donor), would bleed profits under the Davis plan.

Now that's a crisis. So, the vice-president, Dick Cheney, the man we Americans pay to think for Dubya, drafted a plan to deal with the Davis crisis. Until January, Mr. Cheney was CEO of Halliburton Corporation, the USA's largest oil-drilling services company and builder of nuclear plants.

Mr. Cheney wants us to drill more oil and build more nukes. This won't do squat for California, which does not have oil-fired power plants and cannot put more reactors on earthquake faults.

But then, if I may remind you first, California voted Gore.

Soaring Energy Prices, Bankruptcies Undermine Utility Deregulation
Pittsburgh Post-Gazette - By Frank Reeves - May 22, 2001

Pennsylvania residents hoping to beat high electric bills by choosing a supplier other than their local utility are likely to find the going tough. Many electric suppliers who jumped into the Pennsylvania market have left, victims of high wholesale electricity prices that made it virtually impossible for them to beat the price utilities such as Duquesne Light Co. and Allegheny Power were offering customers who didn't switch.

Advocates of electric deregulation are still hopeful that current market conditions will change, but they admit that deregulation, first launched in Pennsylvania in 1996, is facing some severe tests. Deregulation was supposed to stimulate competition, give consumers a choice of electricity suppliers and bring down electric rates. But after a brief spurt of competition and price wars, the situation has done an about-face.

The changed conditions have even prompted the nonprofit Dollar Energy Fund to shift the emphasis of its consumer-education programs on electric choice to reflect concerns about possible blackouts and rate increases. "We get a lot of questions about California. People want to know are we going to have blackouts here," said Cindy Datig, the fund's executive director.

Datig said Dollar Energy Fund staff members are also being asked a lot more about so-called green power -- electricity produced from renewable resources, such as wind and solar, rather than from coal- or gas-fired power plants. The agency also finds itself talking a lot more about ways to conserve energy to keep electric bills under control.

So far, Pennsylvania has avoided the blackouts and soaring electricity bills that have hit California. That's primarily because, unlike the Golden State, demand for electricity here hasn't exceeded supply.

It's also because, as part of the state's deregulation plan, Pennsylvania's electric utilities agreed to cap the rates they charged for supplying electricity. In exchange, the Public Utility Commission allowed the utilities to charge their customers a special fee to pay for the utilities' "stranded costs." These costs included investments in nuclear power reactors that the utilities weren't likely to recoup under deregulation.

The rates utilities charge to customers to supply electricity have become the benchmark -- the "price to compare" in deregulation lingo -- that competitors have had to beat if they hoped to wean customers away from local utilities.

But soaring wholesale electric prices have made it impossible for many competitors -- marketers who would buy energy on the open market and resell it to local consumers -- to beat this price. Beginning last year, there has been an exit of alternative suppliers from the state.

For example,, which served about 30,000 customers in Pennsylvania, including about 6,000 in the region, ceased operations in February. And for the first time, since deregulation began in the state, the number of Duquesne Light customers choosing an alternative supplier has declined, dropping from 176,488 to 175,160 between December and April.

Put another way, customers who had switched from Duquesne to alternative suppliers are now returning to their traditional utility. Sometimes they've done this because the alternative supplier has gone out of business, as is the case with In other instances, they've returned because the price their alternative supplier is offering is higher than their old utility's price…

Power juggling ramped up price
San Francisco Chronicle - by C. Berthelsen and S. Winokur - May 20, 2001

Large power companies have driven up electricity prices in California by throttling their generators up and down to create artificial shortages, according to dozens of interviews with regulators, lawyers and energy industry workers.

Those sources say the unusual maneuvers not only jacked up prices but also wore down equipment and contributed to the record levels of plant shutdowns that are depriving the state of much-needed electricity. The accounts are supported by an independent review of shutdown data by The Chronicle.

The California Energy Commission calculates that an average of 14,990 megawatts of generating capacity, nearly a third of the state's total, was unavailable each day in April because of plant shutdowns, more than four times as much as a year ago.

Such shutdowns are the subject of increasing scrutiny as California enters another period of high demand, the warm spring and summer months of May to September, when electricity usage normally grows by a third.

Loretta Lynch, president of the California Public Utilities Commission, said last week the agency has found considerable evidence of suspicious plant shutdowns. And the California Independent System Operator, which manages the state's power grid, says plant shutdowns have now become the primary means of constricting supply.

But an extensive investigation by The Chronicle has found that not only were generators shut down to boost prices but these "gaming" tactics contributed to the plants' deteriorating condition.

"We suspected it," said Jim MacIntosh, the manager of grid operations for the ISO. "It was a sure factor in driving up prices." Such swings in unit output, he said, "would only make sense in a scenario when they're trying to game something. Otherwise, why would they do that? They're tearing their units up."

Operators at a San Bernardino County power plant owned by Reliant Energy Inc. say a complex plan to manipulate the California energy market began early last year with a series of unusual telephone calls from the company's headquarters in Houston.

According to the accounts of three plant operators, Reliant's operations schedulers on the energy trading floor ordered them to repeatedly decrease, then increase output at the 1,046-megawatt Etiwanda plant. This happened as many as four or five times an hour. Each time the units were ramped down and electricity production fell, plant employees watched on a control room computer screen as spot market energy prices rose. Then came the phone call to ramp the units back up.

"They would tell us what to do, and we would do it," said one of the men, who only agreed to speak on condition they not be identified because they fear being fired. "Afterward, we would just sit there and watch the market change."

The workers said frequent and large swings in electricity output began at a number of California power plants just as the state's power crisis began in earnest. The workers and state power authorities assert the swings were one of the primary means of gaming the wholesale energy market.

"It appears the control rooms are responsive to direction from the trading floors in Houston, rather than the reliability needs of the ISO," said Carl Wood, a commissioner with the utilities commission who is overseeing that agency's investigation into plant outages. "Instead of being responsive to demands for reliability, they're responsive to demands for profitability."

Reliant officials adamantly deny using this tactic or any other mechanism to game the California energy market. They and other power companies, including AES Corp. and a partnership between NRG Energy Inc. and Dynegy Inc., have asserted that skyrocketing electricity demand forced them to run aging, decrepit power plants harder than ever to meet California's needs.

While acknowledging that the company issued changes in output levels as frequently as every 10 minutes, company officials said it was done at the instructions of the ISO to maintain supply-demand balance.

"As a part of routinely doing business within California and the California market design, we are required to do that," said Kevin Frankeny, an operations official with Reliant. "When the ISO (issues dispatch orders), they dispatch on a 10-minute basis. It can go up and down many times within an hour."

Frankeny said he was not aware of any instances in which Reliant schedulers in Houston ordered dispatch changes without the ISO directing them to do it first.

The ISO refused to comment on operations at any specific facility, but Stephanie McCorkle, an ISO spokeswoman, said the ramping tactics were used beyond dispatch instructions during periods of tight supply. And one of the plant operators said the orders to vary output came independently of the grid managers. "ISO was not calling Reliant every 10 minutes for that," said one of the operators. "Not for an individual unit."

Officials with the California attorney general's office declined to comment on the legality of the ramping practice, citing a continuing investigation into whether wholesale energy prices are being manipulated. One source familiar with the state of various inquiries said the ramping, if proved to have been done to drive up prices, could violate the state's unfair business practices laws.

How could companies such as Reliant tinker with output and not get caught?

One of the plant workers said the practice was designed to be virtually invisible to regulators and grid operators.

When power companies bid on hourly contracts, they agree to produce a certain amount of electricity over the given hour. Generators are paid based on an average of the spot market prices for that hour. By driving up the spot price, they can increase their hourly profits and still produce the total amount of energy required.

The plant worker said the units would be ramped down immediately after their output measurement, which was performed at the top of each hour by the ISO. Then, he said, it was brought back up as the spot market price of electricity rose in response to the reduced output. By the time the ISO measured again, the output was back at the expected level.

Another operator said the units were not always ramped up and down - that if the price reached a satisfactory level, generators would raise output and remain at that level as long as the price was right. Other times, if the price was low, output was brought down and kept down.

The same operator said the amount of ramping appeared to be a matter of individual will of the company schedulers in Houston, with some being more aggressive than others.

"What they would do, especially late at night, is if the price tanked, they would undergenerate," an operator said. "Then, mysteriously, the price would go up.

"Then, if the schedule was at 70 (required megawatt hours of output), they'd say, 'Go up to 90.' That would cause the price to tank. And they'd say, 'Bring it down again.' "

These fluctuations occurred within time spans of as little as 10 to 15 minutes, the operators said. But acceptable rates for bringing a unit from minimum to maximum levels when the plant was owned by Southern California Edison were more like 80 minutes, to avoid stressing the machinery, one of the workers said. Moreover, they were typically run at constant levels, which also reduced wear and tear.

"They were basically ramping up as fast as they can, and then slamming the brakes on," said one of the operators. "They were increasing the fatigue on the units."

ISO officials say they changed market operations last fall to crack down on gaming tactics, including instituting a so-called 10-minute market, rather than the hourly market, so that it could be more easily detected when companies were withholding power.

But the ISO says generator outages have now become the primary tactic in driving up energy prices.

A computer analysis by The Chronicle of shutdown data over a recent 39-day period shows Reliant and three other generating companies topped the list of plant shutdowns. Reliant also represented the largest amount of wattage lost among those companies.

Plants owned by Reliant, AES, Mirant Corp. and Duke Energy Inc. accounted for more than half of the state's unplanned shutdowns, even though their generating capacity was no more than 25 percent of the state's total capacity from all sources.

Reliant, one of California's largest and most profitable out-of-state generators, reported 319 shutdowns during the period in March and April. It was followed by Mirant Corp. of Atlanta (310), AES Corp. of Arlington, Va. (278) and Duke Energy North America of Charlotte, N.C. (261).

Reliant's unplanned shutdowns deprived the system of more than 53,000 megawatts over the 40-day period, an average of 1,368 per day - enough power for 1.4 million homes for one hour.

Its Ormond Beach plant in Oxnard, with one generating unit down for 26 days,

accounted for more than 30,000 of those missed megawatts. However, an operator who worked in that plant said the outages there appeared to be the result of legitimate equipment failures.

Reliant says there are valid reasons for its plants now to be in need of repair. They are old: At 48, Etiwanda is the oldest of Reliant's five California plants. And the company says routine maintenance was deferred so the plants could remain in service during times of high summer demand.

But the operators said the issue is not so clear-cut. One problem at Etiwanda, a tube leak, had been present for about a month and was previously reported to management, they said, but it had not deteriorated much, it was operating at full capacity and there was no immediate need to take the unit offline because of the problem.

Moreover, at the time of the shutdown, the ISO had expressly asked Reliant to keep the unit online, the operators said. Richard Wheatley, a spokesman for Reliant, denied that any Reliant unit was taken offline for unnecessary maintenance.

Sources say Reliant was not alone in using the ramping practice. A source familiar with the state utilities commission investigation said output logs obtained from AES' Alamitos plant also reflected production fluctuations. And an operator who has worked at the El Segundo plant co-owned by NRG and Dynegy said the practice was used there, although less frequently. The scheduling calls came from Dynegy's trading floor in Houston, rather than NRG in Minneapolis, he said.

Steve Stengel, a spokesman for Dynegy, said changes in output at El Segundo were a normal function of changing demand levels throughout the day, and denied the company was engaged in gaming the California market.

In a May 2000 report, the California Energy Commission cited Reliant's Etiwanda plant, as well as the Alamitos and El Segundo plants, as some of the "major beneficiaries of high real-time prices" that spring.

One way to obtain those high prices, the plant workers said, was the simple method of demanding a sky-high price and refusing to deliver power if that price was not met.

On one occasion, one operator said, Reliant ordered a unit at Etiwanda to be shut off because the ISO would not meet the price of $1,000 per megawatt hour, even though the legal price cap at the time was $750.

"The operator said, 'It's our unit, shut it off,' " the source said.

Whistle-blowers give evidence that prices were illegally manipulated
San Francisco Chronicle - by David Lazarus - May 19, 2001

State regulators have received evidence from whistle-blowers at California power plants that generators illegally manipulated prices by deliberately withholding electricity during shortages, The Chronicle has learned.

Gary Cohen, general counsel for the Public Utilities Commission, said he expects charges to be brought against the companies within 60 days.

"Basically, what we're saying is that they had an obligation to provide a commodity that otherwise would have been available," he said. "We have evidence that some generators were withholding supply and that this led to Stage 1, 2 and 3 alerts."

Cohen said the PUC's evidence consists mostly of service records compiled by the Independent System Operator, which oversees California's power network.

However, sources familiar with the PUC's investigation said that the commission also has obtained testimony and documents from plant workers and that this will be used to bolster the state's case.

To strengthen its hand, the PUC has retained a prominent Los Angeles antitrust lawyer, Harvey Saferstein, to advise the commission on potential legal strategies. Saferstein is former president of the State Bar of California…

Duke Energy Praises Bush
Duke Energy Employee Advocate - May 19, 2001

The title of Duke's press release says it all: "Duke Energy Praises Bush Blueprint to Meet America's Energy Needs."

Duke's man is in the White House. The energy companies own Bush, and Bush is delivering. Who is surprised? Why should they not be praising him? They know that they have four years of getting anything that they want.

No Genteel Debate
Duke Energy Employee Advocate- May 19, 2001

The Los Angeles Times has reported that the Los Angeles mayoral debate Thursday night, between City Attorney James K. Hahn and former Assembly Speaker Antonio Villaraigosa was spirited.

Mr. Hahn accused Mr. Villaraigosa of contributing to the power crisis, because he was one of the 120 legislators who voted for deregulation.

“The city attorney also accused Villaraigosa of reaping the benefits from deregulation by getting more than $300,000 in political donations from energy companies.”

PUC Chief Alleges Price Collusion
L. A. Times - By RICH CONNELL and ROBERT LOPEZ - May 18, 2001

State investigators have uncovered evidence that a "cartel" of power companies shut down plants for unnecessary maintenance to ratchet up prices, the head of the California Public Utilities Commission asserted Thursday.

PUC President Loretta Lynch said her agency, working with the state attorney general's office, is probing patterns of plant outages that have created "artificial shortages," particularly when the state has issued emergency alerts because of seriously low levels of electricity.

"There are instances where plants could have produced, and they chose not to," Lynch said in an interview at The Times.

"And it is clear that there are instances that plants, when called to produce, chose not to produce," even when they were obligated to do so under special contracts with the state and utility companies.

Lynch said the ongoing investigation has already produced enough information for the PUC and attorney general's office to take legal action against the generators next month. The exact nature of that action, she said, is still under review.

Lynch, who is an attorney, did not name specific suppliers or provide documentation of her assertions. She said that information will remain confidential until court proceedings are undertaken.

Generators have long denied any attempt at manipulating the power market in any unlawful way, including orchestrating plant shutdowns. They say the facilities are so old and have been run so hard during the power crisis that breakdowns are a recurring problem.

Lynch and Gov. Gray Davis, who has been particularly critical of out-of-state generators, have not suggested that every plant shutdown has been unwarranted.

In fact, the governor's top advisor on power plants released a statement last week saying inspectors determined that a Bay Area plant shutdown was justified and that the company's officials were "accommodating."

State Atty. Gen. Bill Lockyer was not available for comment on his joint investigation with the PUC. A spokesman would only confirm that Lockyer's office is investigating plant shutdowns as part of a wide-ranging probe of possible civil and criminal violations.

So far, the attorney general's office has subpoenaed documents in 91 categories from generators, including records of plant operations, pricing practices and information the merchants may have shared with one another about California's power market.

"We're looking for behavior that would violate antitrust or unfair business practice laws," Lockyer has told The Times.

Although he has not provided details of his office's findings, he recently said the inquiry is "beginning to get interesting."

Lynch said evidence of allegedly unnecessary plant shutdowns was amassed during interviews by investigators and in a review of the voluminous subpoenaed records, obtained after intense legal battles with the power companies. In addition, investigators have been entering plants where unplanned shutdowns have occurred to examine operations and maintenance records, Lynch said. At times, the investigators have been denied access and have had to exert legal pressure to get in, she said.

The plant shutdowns are a key factor in the soaring power prices, which have gone from $200 a megawatt-hour in December to as high as $1,900 last week.

"I would argue it's no accident," Lynch said of the high prices. "That in fact it's [due to] the coordinated behavior of a cartel."

The power generators have repeatedly said they have acted within the rules of California's flawed deregulation program, which allowed them to buy power plants formerly run by the state's three largest utilities.

Gary Ackerman, a spokesman for a trade association of large power producers, said Lynch's allegations were "the height of idiocy."

The reason many plants have been down in recent months, he said, is that power producers must perform maintenance now in anticipation of heavy summer demand.

He said he doubted that state investigators could prove wrongdoing because there was no conspiracy to turn off supplies.

"My members do not make money by shutting down their plants so their competitors can make money," said Ackerman, executive director of the Western Power Trading Forum.

State analysts have argued, however, that power traders can reap extraordinary profits by withholding power because the prices for the power that is sold are so high.

According to Lynch, investigators have found that some companies were more aggressive than others in allegedly using plant shutdowns to manipulate the state's power market.

She said investigators have also found a suspicious pattern: When operators of the state electricity grid declare a Stage 1 alert--meaning that electricity reserves have dropped below 7%--plants that do not need repairs suddenly are yanked offline. That, she said, aggravates the shortages, and the cost of wholesale electricity soars.

Before December, state analysts alleged that power traders had driven up prices primarily through bidding. At the time, the market was designed to pay all power suppliers the highest amount accepted by the state's grid operator. That changed in December, when new federal regulations restructured California's wholesale power market to loosen price controls, Lynch said. Since then, a new pattern of plant shutdowns has emerged--"not coincidentally in my view," she said. Now, she added, the state has endured "historically high levels of unplanned plant outages." The investigation is not focusing on power plants still operated by utility companies because they have not been "going off [line] at record levels," Lynch said.

The California Energy Commission reported last week that the state's electrical grid has been sorely tested by plant shutdowns at a rate several times higher than in the last two years.

A Times analysis of state data found that, throughout the last two months, about 12,000 megawatts of production was offline, more than a third of the peak power used in California on a typical day. That has been about evenly divided between scheduled and sudden plant shutdowns.

By contrast, shutdowns in the same period of 1999 and 2000 took only 3,300 to 5,700 megawatts offline. Last month, the Federal Energy Regulatory Commission ordered electricity supplier Williams Energy Marketing and Trading to pay $8 million in connection with allegations that plants were improperly shut down to raise prices.

The company agreed to settle the case without admitting any wrongdoing.

However, FERC released a study in February of closures at three other California plants that it concluded were not undertaken to create a scarcity of power.

After talking to plant operators by telephone, reviewing documents and visiting the three plants, federal inspectors concluded that "the companies appeared to have taken whatever steps were necessary to bring the generating facilities back online as soon as possible by accelerating maintenance and incurring additional expenses."

Davis Turns Up the Heat on Supplier
L. A. Times - By DAN MORAIN, NANCY VOGEL - May 17, 2001

SACRAMENTO - After months of broadly vilifying California's energy suppliers, Gov. Gray Davis has launched a new offensive, taking aim at a single firm: Houston-based Reliant Energy, whose executives believe the governor may be building a case to confiscate the company's power plants.

Intensifying his assault, Davis on Wednesday called Reliant "obstructionist." He warned that actions taken by Reliant and other independent generators this summer will determine whether he signs a windfall profits tax bill or, in the extreme, commandeers the electricity produced by a plant or seizes the facility itself.

"I've made clear to the generators that they can influence my decision," Davis said in an interview. "We have a very tough summer ahead of us. We need their full cooperation. . . . I reserve the right to do what is in the state's best interest. I think it is fair to say that Reliant is not off to a good start."

Earlier in the day, after signing a bill creating a power authority in California, the governor warned electricity suppliers: "If they don't want to see their plants seized, they should make sure their plants are up and running this summer."

The increasingly hostile barbs have grabbed Reliant's attention. Some executives believe they are being set up by the administration--for what, they're not sure. But the company is reviewing contingency plans, ranging from what plant operators should do if their facilities are picketed and who they should call if state officials show up unannounced. "We would hope," Reliant spokesman Richard Wheatley said, "that draconian measures and political rhetoric and finger-pointing would not be pursued. But there is a history of confiscatory actions, including seizure of power contracts with other companies."

Earlier this year, Davis used his emergency authority to seize long-term power contracts that Southern California Edison and Pacific Gas & Electric had signed with power sellers. Those contracts were about to be auctioned by California's power market to reimburse generators owed money by the hobbled utilities.

By seizing the contracts--estimated to be worth nearly $1 billion--Davis was able to ensure that power would be sold to California at relatively low prices, rather than resold on the costlier spot market. Under his emergency authority, Davis could use the same tactic to seize power plants, or the power produced by the facilities.

But such an act would pose huge risks. Perhaps most troublesome, other private companies might react by pulling investments out of California or, in the case of out-of-state generators, stop sales here.

Still, as the power crisis worsens and public frustration grows, calls for the governor to seize power plants have become more intense.

"Sooner or later," Senate President Pro Tem John Burton said Wednesday, "we've got to let these buccaneers know that we're not going to tolerate what they're doing to us. The only thing these exploiters would understand is possibly a little counterterrorism."

Reliant got involved in California's deregulated market in 1998, buying five power plants from Edison for $292 million. Combined, the plants are capable of supplying 3,700 megawatts of electricity, enough to serve 2.8 million homes.

In the first quarter of 2001, Reliant's wholesale energy sales increased by 171%, producing income of $216 million, compared to a loss of $22 million for the same period last year.

Reliant is not alone in making huge money off California's deregulation debacle. Also profiting have been Duke Energy, Williams Cos., Mirant Corp. and Dynegy Inc.--all based outside California. In the past, Davis has used an assortment of inflammatory terms to broad-brush the generators. He recently called them "the biggest snakes on the planet Earth."

Electric Deregulation Movement in North Carolina Gets Unplugged
High Point Enterprise - By Paul B. Johnson - May 15, 2001

A year ago, the possibilities brightened that North Carolina leaders would make a historic shift in the way the state's 4 million electric customers buy power.

Today, the chances of deregulating the $8-billion-a-year electric industry in North Carolina have darkened like a house at night cut off from power by a rolling blackout.

The on-and-off California electric deregulation crisis, which has led to higher electric rates, periodic blackouts of communities and financially strapped utilities, has snuffed the discussion of electric industry reform in North Carolina, analysts say. Legislators haven't introduced any bills on deregulation of the state's electric industry during the current General Assembly session that began in January. The Legislature's Study Commission on the Future of Electric Service in North Carolina, which was created more than three years ago, won't meet again until the General Assembly session ends sometime this summer.

The delay is because 18 of the 30 members are legislators, whose time is occupied during the session handling other matters of state government.

A year ago this month, the commission formally adopted a report on deregulating the sale of electricity in North Carolina.

The commission, made up of legislators, utility industry officials and representatives for business and residential power customers, unanimously decided in May 2000 to make a set of recommendations to the General Assembly. The recommendations included the fundamental shift to the competitive sale of power from the monopoly system that's been in place for nearly a century. Customers would be able to buy power from various suppliers in a fashion similar to the way they purchase long-distance telephone service.

The commission was set to recommend the sale of electricity to the state's 4 million customers be fully opened to competition by 2006.

Within a couple months, though, the first catastrophe struck in California, which was one of the first states in the nation to shed the regulated system of overseeing the electric industry to move toward a more competitive approach.

A hotter-than-normal summer last year in the West led to higher demand and tight supplies for electricity, which caused a sudden spike in costs for California electric users. Since last summer, California has suffered through periodic rolling blackouts, and the state's utilities have fallen into near insolvency. The most recent blackouts in parts of California occurred last week, disrupting businesses and the lives of individuals.

As a result of the problems last year in California, the study commission decided in January not to go forward with its recommendations and declined to propose any legislation for this year's session.

The debacle in California has halted the movement toward electric deregulation in North Carolina, said Rob Schofield, a public interest advocate for the N.C. Justice and Community Development Center in Raleigh. "Legislators have recognized that this is more complicated than it seems, and they are terrified about the possibility of similar problems here that have happened in California," said Schofield, a consumer advocate who has regularly attended study commission meetings in Raleigh.

Schofield said that he doesn't expect the commission to "move with any great force in restructuring when they resume meeting" later this year.

The electricity crisis in California has rippled into other states.

The start date for electric retail access under existing laws was delayed by state legislators for nearly two years in Arkansas and for five years in New Mexico, with delays considered in Nevada and West Virginia, according to the LEAP Letter, an online newsletter on state and federal actions on electric restructuring. At one point last year, more than two dozen states had begun or were braced to begin electric deregulation in some format.

When the study commission resumes meeting after the 2001 legislative session, the members will analyze the problems of deregulation and examine states where electric industry reform has succeeded, said state Rep. Mary Jarrell, D-Guilford, a member of the commission.

The members also want to encourage more construction of power plants in North Carolina to ensure an adequate supply of electricity, Jarrell said.

"This is not as dead as you might think," Jarrell said. "The idea of deregulation is not completely out of the picture, but we need to make sure we have safeguards in place. What's happened in California has made us re-evaluate what we had done to this point." State Sen. Kay Hagan, D-Guilford, and the other commission member from the Triad, said the state needs to develop a comprehensive energy policy so North Carolina can better respond to changes in the energy industry.

The only major legislation that has come up during the 2001 session concerning energy is a bill that would require more cleanup of smokestacks at power plants in North Carolina, Hagan said.

The slowdown of the restructuring movement in North Carolina isn't an unexpected development, said Chris Mele, legislative director for the National Association of Regulatory Utility Commissioners in Washington, D.C.

"A lot of states have taken a little pause to look at what's going on," Mele said. "Certainly, opponents of the restructuring of the electricity industry are pointing to California and saying this whole idea is flawed." The landscape for the debate won't change until some states show progress with electric industry restructuring and the problems begin to recede, Mele said.

Plant Shutdowns Tied to Power Costs
L. A. Times - by MITCHELL LANDSBERG - May 12, 2001

Since the moment electricity prices began to soar in May 2000, California power plants have been shutting down--purportedly for repairs and maintenance--at rates two, three and four times higher than before, according to figures made public by the state Energy Commission.

The figures, posted on the commission's Web site this week, provided new evidence Friday to those who believe the generators have been manipulating the state's electricity market by creating an artificial shortage.

The commission tabulations showed that the amount of electricity kept off the market because of shutdowns and breakdowns began growing last May and has continued to expand, reaching a peak last month, when the amount offline was 350% greater than in April 2000. This April, the average amount offline was 14,990 megawatts, about one-third of the state's total needs.

At the same time, the wholesale price of electricity increased from about $30 a megawatt-hour last April to more than $1,500 a megawatt-hour later in the year. This week, it reached a new peak of $2,000 a megawatt-hour. One megawatt-hour of electricity is enough to power about 750 households, although it varies widely by season.

"It was about May of last year that they saw they had some market power by withholding [power]," said Rob Schlichting, a spokesman for the Energy Commission. "I'm sorry, I find it hard to believe this is all because they've had breakdowns, or they had maintenance they had to be doing."

A spokesman for Gov. Gray Davis said the figures confirmed the governor's complaints about the generators, which bought the plants from California utilities when the state's electricity marketplace was deregulated in 1998.

"It's definitely an issue of concern," said Roger Salazar, who added that the numbers highlight the need for the state to more closely monitor plant shutdowns. Richard Sklar, the governor's electricity supply advisor, said he reached an agreement with the generators Wednesday allowing the state to inspect plants when they shut down.

Spokesmen for the generators said the plants have been shutting down more frequently because they've been running harder and longer, putting a strain on equipment and also requiring new pollution-control devices, which take time to install.

"We've been running them flat out," said Tom Williams, a spokesman for Duke Power, which owns four power plants in California. He said he took "extreme exception" to the idea that Duke was shutting down plants to manipulate the market. In fact, he said, Duke's California plants have better reliability records now than they did when they were owned by the state's big private utilities.

The Energy Commission figures show that, for the first four months of 2000, when wholesale electricity prices were essentially flat, generators shut down their plants for repairs or maintenance somewhat less often than in 1999. In May 2000, a jump in natural gas prices sent electricity prices sharply higher. Plant shutdowns--as measured by the average amount of electricity that could have been produced each day but wasn't--went up that month by 32% from the year before.

That was the last month that the percentage increase was in double digits. In June, plants were 120% more likely to be out of service than in 1999. The month after that, 130%.

The increases continued to grow, averaging well over 200% during the last four months of 2000, when prices leaped still higher, California utilities lost their ability to pay for wholesale electricity and their customers added a new term to their lexicon: the rolling blackout.

The first four months of this year saw even more outages, culminating in April's 350% increase.

Generators explained the April figure by noting that California grid regulators had asked the operators of numerous power plants to postpone necessary, routine maintenance during the winter months, when the state faced constant shortages. Several plants, such as an AES Corp. plant in Huntington Beach, finally shut down in April--months late--so they could be ready for the summer.

Also, portions of both the San Onofre and Diablo Canyon nuclear power plants were offline in April, depriving the state of more than 2,000 megawatts. One unit at Diablo Canyon went down for refueling--an essential part of maintenance--and a unit at San Onofre has been shut down since February to repair damage from a fire. That doesn't explain the earlier increases in shutdowns, but Gary Ackerman, executive director of the Western Power Trading Forum, which represents electricity traders and generators, suggested that many of the outages in the last nine months or so could also be explained by deferred maintenance.

"The older units were being required to run many, many more hours last summer than they had in any previous year," he said. "So what we had is a lot of wear and tear put on machinery . . . you can only defer maintenance to a point."

Anyway, he said, "Why would they want to take their units offline when the prices are high? It doesn't make economic sense."

Critics say the outages are intended to raise the price of electricity by creating an artificial shortage. High prices have forced the state to step in as the leading purchaser of wholesale electricity, prompting Davis to propose the largest state bond issue ever. They also have driven the state's largest utility, Pacific Gas & Electric, into federal Bankruptcy Court.

"In a sense, this is what we should expect in a deregulated world," said Doug Heller, a spokesman for the Foundation for Taxpayer and Consumer Rights in Santa Monica. "With deregulation, we threw away our ability to ensure reliability--and this is the evidence of it."

One leading expert on the state's energy markets said there may be validity to both the criticism and the generators' defense.

The generators' claim that they were forced to run their plants unusually hard "is somewhat true," said Severin Borenstein, director of UC Energy Institute in Berkeley. But he added, "There's also no doubt that some of them have an incentive to take [plants] offline to jack up prices. The problem is that it's hard to prove which is which."

Governor Asks Generators to Take Less Than They're Owed
L. A. Times - By DAN MORAIN - May 10, 2001

After spending months bashing independent power generators, Gov. Gray Davis on Wednesday called on them to take 30% less than the $1.2 billion they are owed by Southern California Edison.

"The Legislature [is] going to insist on a reduction," Davis said after a meeting in his office with representatives of a dozen power generating companies. Davis said he told them that "70% this year was more valuable to them than whatever they get two or three years down the line" if Edison is forced into bankruptcy.

Davis urged generators to help California extricate itself from a summer of rolling blackouts by selling every available electron to the state.

He held out the possibility that he might sign legislation imposing a windfall profits tax on generators if they fail to help out this summer.

"My attitude on that would depend a lot on whether they showed good faith and cooperated throughout this process," Davis said, emerging after a four-hour, closed-door meeting with the generators.

The Democratic governor issued an invitation last week to the chief executive officers of power generating and marketing companies including Enron, Reliant, Duke Energy and others to meet with him in Sacramento. But most of the executives who attended were a few pay grades below CEO.

Davis said he urged that the executives press lawmakers to approve the deal he struck with Edison in which the state would give the ailing utility an infusion of cash by buying its transmission system for $2.76 billion. Edison would use the money to restructure its debt and pay its creditors.

Davis said lawmakers will not approve the deal unless the independent power generators take less than they are owed.

He noted that the state and the power generators have "a collective interest in seeing that this summer has as few disruptions as possible." If California is hit with repeated blackouts, Davis has said, other states will delay or end efforts to deregulate their electricity markets.

Executives, who braved taunts from a few protesters wearing pig masks and carrying a small but loudly squealing pig, characterized the meeting as businesslike. But at least some generators are less than enthusiastic about taking less than they are owed…

Duke Energy and California
Contra Costa Times - By Rick Jurgens - May 6, 2001

When the shareholders of Duke Energy Corp. gathered for the company's annual meeting, Chief Executive Richard Priory likened California's business climate to that of a Third World country: "It's no different than if it was Ecuador or Peru and we had investment decisions to make in those countries."

Those were harsh words, considering how much California has meant to Duke and the other large electricity generators, natural gas producers and energy traders.

Just how big a windfall giant power sellers have reaped from California remains shrouded in mystery. Duke didn't disclose what portion of its $49.3 billion in 2000 revenue and $1.8 billion in profits came from the Golden State. But the company, with its three largest nonutility power plants and more than half of its unregulated generating capacity located in California, has a huge stake in the California market.

That stake should be highlighted Wednesday in Sacramento, where Gov. Gray Davis has invited the top executives of Duke and other major power suppliers and traders for a talk about the state's energy crisis. It also hovers over annual shareholders meetings now under way for Duke and the other nine companies that own the state's key merchant power plants and natural gas pipelines.

Although those 10 companies still are waiting to be paid $1.8 billion for wholesale energy sales in California, they posted a 100 percent gain in their combined 2000 net income, to $7.4 billion from $3.7 billion in 1999.

While that gain reflected a nationwide rise in energy prices, Californians' outlays have led the way. The tab for electricity sold here soared to $27.1 billion in 2000, nearly quadruple the 1999 total of $7.4 billion, shocking consumers, pushing Pacific Gas & Electric Co. into bankruptcy and emerging as the top issue for the state's politicians.

Both sides acknowledge that the resulting face-off between California officials and power sellers will affect the future of electricity restructuring.

"The generators have a considerable interest in the acceptance of deregulation as an appropriate model for the rest of America," Davis told the Times Editorial Board last week. "If they continue to screw up this state, they've got a real tough sell on their hands."

The generators' role in politics was a topic at the Duke shareholders meeting last month, where a resolution to ban contributions to any "political movement or entity" was overwhelmingly rejected, 469 million to 21 million votes, in a one-share one-vote election. According to the sponsor, such contributions are "nothing more than an overt effort to control elections." Duke's directors argued that the company's "interaction with legislators and regulators influences the products and services it is able to offer and deliver."

Last year, Duke lubricated that interaction with $46,500 in "soft money" donations to Republican Party campaign funds. But Duke's political largesse was overshadowed by that of Enron, which gave $727,000 in soft money, including $388,000 to Republicans and $339,000 to Democrats. Other big contributors included Reliant, which gave $419,000, mostly to Republicans, and El Paso, which gave $334,000, all to the GOP.

Duke Energy's Offer to Davis Denounced
L. A. Times - By DAN MORAIN - May 3, 2001

Lawmakers and consumer advocates Wednesday denounced an expansive proposal in which a major North Carolina power supplier offered political support to Gov. Gray Davis if Davis would end antitrust and other investigations and stop criticizing electricity deregulation.

Duke Energy, one of the largest independent power producers in California, initiated talks with the Davis administration in March. The company released documents Wednesday that proposed an overall strategy to Davis for resolving the state's energy crisis, and a "global settlement template" between the state and Duke.

According to Duke's proposal, the company is seeking "prompt suspension of state investigations, lowering of rhetoric and stay of state litigation" being contemplated by the state attorney general, California Public Utilities Commission, Electricity Oversight Board and state auditor.

The document suggested that Davis explain the energy crisis to the public by shifting blame to his predecessor, former Gov. Pete Wilson: "[Davis] will continue to indicate that the California crisis is an aberration due to flawed legislation of Gov. Wilson, not a necessary consequence of deregulation, and will not advocate scrapping deregulation in wholesale power markets."

For its part, Duke said it would take an unspecified discount on $110 million it says it is owed by the state's private utilities, "without admitting legal liability, because Duke has done nothing illegal." Duke also would increase its commitment to build more power plants in California "if there is a rational and stable business and regulatory climate."

The company also offered Davis political help.

"Duke is committed to expediting high-level confidential discussions that would embrace the governor's political and public relations needs," said the proposal submitted to Davis' aides last month.

"It is unbelievable," said Harry Snyder of Consumers Union. "The attorney general ought to open an investigation into whether they have attempted to bribe the governor. It is an attempt to subvert democracy."

In an interview, James Donnell, head of Duke Energy North America, said the company was not offering to help Davis with his 2002 reelection or aspirations for higher office. Rather, the company was offering to help Davis win political support for aspects of his energy plan, including the purchase of the transmission system from private utilities.

"We offered real solutions; we can help here," Donnell said, adding that he spoke with one of Davis' top aides Wednesday and agreed to continue negotiations.

Davis spokesman Steve Maviglio said Davis intends to meet with power generators next week. But he termed Duke's offer a "wish list," and said the Democratic governor has no plans to scuttle investigations of Duke by Atty. Gen. Bill Lockyer.

Maviglio said Davis did not see the documents until Tuesday. Nor has Davis spoken to any Duke representatives, leaving that task to Davis' chief of staff, Lynn Schenk, the governor's lawyer, Barry Goode, and other top aides, Maviglio said.

Lockyer spokesman Nathan Barankin declined to discuss the proposal but said: "Our investigation is active and ongoing."

Duke executives released the documents Wednesday after news reports surfaced about the settlement offer. Duke submitted the proposal in late March, before Davis agreed to a rate increase, before Pacific Gas & Electric filed for bankruptcy, and before Davis reached a tentative deal to rescue Southern California Edison by purchasing its transmission system for $2.76 billion.

The proposal urges the governor to take several steps, including tempering his criticism of electricity deregulation. In the past, Davis has criticized Wilson for approving what he says was a flawed electricity deregulation scheme in 1996, but has stopped short of denouncing the concept of electricity deregulation.

"Our concern," Duke spokeswoman Cathy Roche said, "is that the rest of the country not say that deregulation is a failure, when the failure was the particular market and set of regulations that California came up with."

Sean Walsh, who was Wilson's spokesman, charged that the document "absolutely smacks of collusion between Duke and Davis."

"This thing stinks," Walsh said, calling on Davis to release all communications between Duke and the governor's office. "This is a deal to try to cover Gov. Davis' backside for his failure to act promptly and responsibly."

Sen. Steve Peace (D-El Cajon), who carried 1996 legislation aimed at implementing aspects of deregulation, called Duke's suggestion a "smoking gun."

As California goes more deeply into debt buying power, electricity rates rise and summer blackouts loom, power generators are engaged in a campaign to save deregulation nationally by "creating the fiction that the California product was unique," Peace said.

"Given the same circumstances," Peace said, "any of the [states'] markets can be manipulated."

Duke has been among the most politically active generating companies, regularly meeting with public officials and stressing its commitment to the state. The company owns three major power plants in California, having bought them from private utilities.

In July, Duke sent a letter to Gov. Davis offering to sell California utilities 2,000 megawatts of electricity for five years at what now would be considered a bargain rate. The administration did not act on the suggestion. Duke is the first major generator to take steps toward settling with the state, agreeing that it would forgive "an appropriate amount of certain receivables," although no amount is specified.

"We wanted the state to work with us in setting aside suits that are without merit," Donnell said. "They're unhealthy for the marketplace."

Duke said in its offer that it should receive "an appropriate discount for being the first to settle."

The company would not say how much of a discount it would take on money it claims to be owed for power sales in California. But Joseph Fichera, a consultant retained by Davis to work on the energy crisis, said he expects generators to take at least 20% to 25% less than they claim they are owed. If the state agrees to drop its investigations, generators would take an even larger discount, Fichera said.

Senate President Pro Tem John Burton (D-San Francisco) called Duke's offer bizarre.

"Without admitting 'legal liability,' they are admitting they are ripping us off," Burton said. "People do settle lawsuits. But stopping an investigation? What is it we are supposed to find?"

However, industry spokesmen lauded Duke. Gary Ackerman, a spokesman for the power generation industry, said the proposal shows that Duke is "trying to be aboveboard and reach a solution to the problem." Aaron Thomas, a spokesman for AES, another large independent generator, called Duke's proposal "thoughtful."

"I am impressed by the scope of the work here," Thomas said.

In the offer, Duke said it opposes several pending bills, but singled out one by Sen. Jackie Speier (D-Hillsborough) that would give the PUC authority to investigate private power generators.

The company said that though it would agree to legislation granting the state authority to audit private power plants, audit results should be confidential to "avoid inflammatory rhetoric."

Among other provisions, Duke said it would:

*Work with California officials to modify environmental constraints on its power plants, so it could increase power generation. Donnell said relaxation of environmental restrictions would be temporary, and could bring an additional 300 to 500 megawatts to the state this summer.

*Build a new 650-megawatt power plant by summer 2002, if the state helps it find a site and eases other restrictions.

New Lawsuit Says Duke Energy Overcharged
The Charlotte Observer - By TED REED - May 3, 2001

The day after reports that Duke Energy Corp. wants to settle several lawsuits accusing it of price fixing in California's chaotic power market, a top state official filed another one.

California Lt. Gov. Cruz Bustamante and a state assemblywoman filed the suit Wednesday in Los Angeles Superior Court, contending five out-of-state power companies, including Duke, overcharged the state.

The suit is the first by California's elected officials against the power producers since the state's power crisis erupted last year. "There's a lot of evidence these five companies have overcharged California ratepayers by billions of dollars," Bustamante told The Observer.

The Charlotte-based company denies the charge.

The suit came even as Duke made public its proposals to settle consumer and class-action lawsuits, halt several investigations into pricing and help solve the state's energy crisis. Duke had wanted the plans to remain secret but released the documents after published reports Wednesday disclosed them.

Said Davis spokesman Steve Maviglio: "We're always willing to listen, if they're willing to take a haircut and stop gouging customers."

Bustamante said a settlement could occur only if the power companies "give us back all the money they stole."

The suit filed by Bustamante contends the five producers gained control of 19 gas-fired power plants in California, then engaged in unlawful trading practices to manipulate the market. The suit names Duke, Dynegy Inc., Reliant Energy Inc., Mirant Corp. and Williams Co.

Bustamante cited a study by the California Independent System Operator, which manages the state's power grid, showing that Duke and 25 other suppliers overcharged the state by $6.2 billion over 10 months ended in February. "They were increasing costs above competitive rates," he said.

The settlement would include a resolution of all pending lawsuits and investigations into the company's pricing activities. Duke would make an unspecified "appropriate payment" without admitting wrongdoing.

Alleged Price-Fixing Conspiracy
L. A. Times - By JULIE TAMAKI - May 3, 2001

Lt. Gov. Cruz Bustamante sued five big power generators Wednesday in a bid to recover billions in taxpayer money. Filed in Los Angeles County Superior Court, the lawsuit accuses the power producers and 14 of their executives of engaging in a price-fixing conspiracy that has drained California's treasury.

The companies are Duke Energy, Mirant Inc., Reliant Energy, Williams Energy Services and Dynegy Inc.

"This energy cartel has basically scammed California taxpayers by manipulating the energy market out of billions of dollars," Bustamante said.

In filing the lawsuit as private citizens on behalf of state taxpayers, Bustamante and Assemblywoman Barbara Matthews (D-Tracy) are betting on a Los Angeles jury to find that the companies colluded to manipulate the state's energy market--a conclusion federal regulators have yet to draw.

The lawsuit comes on the heels of a proposal by Duke Energy to the Davis administration that all state investigations and lawsuits into the company's pricing activities be dropped in exchange for monetary concessions.

Bustamante said he would only consider withdrawing his suit if the companies agreed to return all of their illegal profits.

Duke Energy Offers California a Secret Deal
New York Times - By JEFF GERTH, LOWELL BERGMAN - May 2, 2001

Duke Energy, a power-generating company accused of overcharging customers millions of dollars during California's year-old energy crisis, has secretly offered Gov. Gray Davis a deal that it hopes will solve its legal problems while helping to calm the state's chaotic electricity markets.

The proposed settlement, outlined in documents prepared in March by Duke's lawyers, calls for an end to various state investigations, private lawsuits and state complaints to federal authorities accusing Duke of overcharging.

In return, Duke would make an unspecified "appropriate payment" but admit no wrongdoing.

"Duke is committed to sharing pain" and "expediting high-level confidential discussions that would embrace the governor's political and public relations needs," according to the documents, which were given to The New York Times by someone who wanted the issue aired publicly.

Governor Davis acknowledged the secret discussions in an interview in San Francisco yesterday, and said he hoped to meet with more generators soon. But he insisted that none of the companies would escape a substantial payment because, he said, they have penalized the state with excessive prices.

"My general approach to the energy companies is that you have already charged the utilities a 50 percent credit penalty for the power they were buying from you," Mr. Davis said, so "you're going to have to have a very substantial reduction" in what the companies are owed.

Mr. Davis said Duke had walked in with "a number of demands," including an end to state inquiries but that that was not likely to happen.

"We're not about to call off the dogs," said the governor, a Democrat who will seek re-election next year.

Duke, based in Charlotte, N.C., is a major investor in California's wholesale electricity market, having spent more than $1 billion since the state opened its generating plants to outside operators in 1996.

It is also near the top of the list of companies accused of overcharging. Duke has been ordered by federal regulators to justify or refund $20 million in disputed charges this year, an amount that is third-highest among federally regulated companies in the California market.

By entering secret negotiations with Mr. Davis and being the first generator to settle, Duke could gain a public-relations advantage, in much the same way that the Liggett Group donned a white hat by being the first company to open talks with the state governments in the tobacco-litigation wars.

"We've just simply tried to be part of the solution," Richard B. Priory, Duke's chairman and chief executive, said in an interview, adding that the company was "offering ideas" and "throwing in suggestions."

Publicly, Mr. Davis has disparaged out-of-state electricity generators before and after he began talking with them privately. In an interview two weeks ago with The Los Angeles Times, he called the generators "the biggest snakes on the planet Earth" for their pricing practices.

California's electricity costs have risen to about $28 billion last year from $7 billion in 1999. By some estimates, they could approach $70 billion this year - $2,000 for every resident. The state has stepped in to buy power for financially crippled utilities, including Pacific Gas and Electric, which is now in bankruptcy court.

The Davis administration has struck power deals with companies like Duke in hopes of securing a stable and affordable source of power. To pay those bills, Mr. Davis is seeking the largest municipal bond issue in American history, $12 billion, although some state officials privately estimate that the final amount will be higher.

Several Republicans have sued the Davis administration to learn the terms of specific contracts entered into by the state. On Monday, the administration released a 67-page financial analysis, including its most detailed disclosure about the overall costs of state electricity contracts. Last week Republicans blocked legislation that Mr. Davis says he needs to pass the bond issue. The bill could come up for a vote later this week.

"The thing that has hindered Governor Davis the most among the legislative ranks is the demand for secrecy over the negotiations and the agreements that have been reached," said Senator Joseph L. Dunn, a Democrat from Santa Ana and the chairman of a select committee investigating the price spikes.

Mr. Davis, in the interview, said there were legitimate commercial reasons for keeping contract terms confidential.

The political uncertainty has spilled over into the markets, where the bonds would have to be sold. The state's credit rating, while still solid, is slipping.

Already companies that do business with California, like Duke, are citing the state's creditworthiness as a reason for charging higher prices in their dealing with the state, though the state has stepped in as buyer since February.

The Federal Energy Regulatory Commission recently ordered generators to justify high prices in California this year or pay $125 million in refunds. The companies - including Duke, Reliant Energy, Dynegy Inc. and the Williams Company - deny any wrongdoing and cite the state's credit situation as one reason for the high prices.

Mr. Priory, the Duke chairman, said that resolution of credit issues would lead his company to drop the so-called "credit premium" it now charges on power sales. As of March 7, Duke was owed more than $100 million by the state's power managers, documents show.

In its confidential submission to Mr. Davis and his aides, Duke said it would "forgive an appropriate amount of certain receivables, or make an appropriate payment based upon a methodology that fairly represents its share of alleged overcharges."

The documents do not give an amount, but Duke's 2000 annual report shows that its wholesale energy division had written off $110 million for power sales to California that had not been collected. (Even with that write-off, the unit's profits before taxes doubled from 1999 to 2000, and quadrupled for the first quarter of this year.)

Duke's "preliminary global settlement template" of March 9 goes on: "Duke is committed to sharing pain with state and others on a fair and equitable basis, without admitting legal liability, because Duke has done nothing illegal."

Duke says that much of its California power was sold last year on the forward markets, not the more volatile and higher-priced spot markets. But Mr. Priory also noted in his interview that at least 10 percent was sold for "whatever the market price is."

On March 23, Duke's lawyer, at the request of Mr. Davis's legal affairs secretary, forwarded to the governor's office additional information about pending litigation involving Duke and its power sales in California. The documents show that a top Duke priority is the "prompt suspension of state investigations, lowering of rhetoric and stay of state litigation," as well as the withdrawal of state-related claims at the federal energy commission.

Also in March, the operators of the state's power grid told the Federal Energy Regulatory Commission that wholesale electricity prices in California were more than $6 billion above competitive prices over the previous 10 months. Duke has questioned the methodology of that submission and wants the claim withdrawn.

The inquiries of concern to Duke include those being conducted by the office of the attorney general, William Lockyer, and the California Public Utilities Commission.

Barry P. Goode, the governor's legal affairs secretary, says he subsequently referred Duke's lawyer to the attorney general's office. The two state agencies say that their inquiries are continuing. Sandra Michioku, a spokeswoman for Mr. Lockyer, said, "Our investigation is ongoing."

Loretta Lynch, the president of the utility commission, said in a telephone interview yesterday, "The public utilities commission has not been involved in any settlement discussions with generators and our investigations into overcharges and withholding are ongoing and strong."

The Duke documents say the company should be given preferential treatment for its conciliatory stance.

Other generators said they were not involved in settlement discussions with Mr. Davis.

Coal and Utility Companies are Lobbying for Dirty Air
Duke Energy Employee Advocate - May 2, 2001

On May 1, 2001, The Wall Street Journal reported that coal and utility companies are lobbying the Bush administration for eased clean-air regulations.

The millions of dollars in political donations that they have made should not hurt their chances any.

Duke Energy's Lawsuit Dismissed
L. A. Times - May 1, 2001

(AP) A federal judge has dismissed a lawsuit filed by Houston-based Duke Energy against Gov. Gray Davis over energy contracts that California seized earlier this year from Southern California Edison and Pacific Gas & Electric. U.S. District Judge Terry Hatter ruled that Davis has immunity under the 11th Amendment, which prevents residents of one state from suing the government of another state in federal court. Duke filed suit on Feb. 8, alleging that Davis illegally took control of long-term contracts requiring the company to deliver energy to California utilities. Duke claimed the governor exceeded his authority under the state's Emergency Services Act because the contracts were regulated exclusively by the federal government.

Power Companies Step Up Lobbying
L. A. Times - May 1, 2001

As California's electricity crisis exploded this year, so did lobbying by energy companies.

Pacific Gas & Electric Co., which has filed for bankruptcy protection, spent $622,000 lobbying lawmakers and Gov. Gray Davis' administration during the first three months of the year, according to reports filed with the state Monday.

The reports show that seven energy companies spent more than $1 million on lobbying as they ramped up their response to the crisis.

Duke Energy is among the firms paying top dollar for Sacramento lobbyists as it seeks to build power plants in California to capitalize on the state's energy shortage. The company reported spending more than $62,000 on lobbying through March 31--more than it spent all of last year.

Deregulation April - 2001