Today

Thursday, December 14

The Honorable James Hoecker
We are writing to urge your immediate action regarding the critical West Coast energy crisis. The unseasonably cold weather and a severe supply/demand imbalance resulted in energy shortages and unprecedented prices. Market prices spiked as high as $5,000 per megawatt-hour, despite the fact the forecasted severe temperatures did not occur. While circumstances have moderated to some extent, market prices remain orders of magnitude higher than we have ever experienced during a winter period.

Although improved weather conditions ultimately averted a crisis, we do not believe that last week's circumstances will prove to have been an aberration. Therefore, it is critical for the Commission to now take proactive measures to assure that the power supply in the West remains secure during this market transition period.

As a matter of philosophy, the undersigned companies are not supportive of market intervention by the Commission. However, recent events have persuaded us that Western wholesale power market price caps would be appropriate on an interim basis.

Consistent with comments you have received from the U.S. Department of Energy, we urge the Commission to adopt west wide price cap regulations and the Secretary of Energy to direct all fedral power marketing agencies to comply with such regulations with the following attributes:

1. Alternatives such as "cost plus" caps or soft caps should be considered.

2. Any price cap regulations should extend to all jurisdictional utilities and power marketing agencies in the Western Systems Coordinating Council. We believe that any sub-regional approach would likely not be effective and could give rise to additional market imperfections, such as the transfer of power away from markets with price caps.

3. Any price cap regulations should have a stated sunset date so that uncertainty is not created among market participants that could cause the construction of new generation to be deferred.

4. Any price cap regulations should only apply to transactions that are consummated after their effective date.

We stand ready to meet with you and your staff, if necessary, to further discuss these matters to assure prompt and effective action.

Very truly yours,

William Weaver
Puget Sound Energy

Alan Richardson
PacifiCorp

Wednesday, December 13

FOR IMMEDIATE RELEASE
December 13, 2000

GOVERNOR DAVIS AND SENATOR FEINSTEIN ISSUE STATEMENT REGARDING CALIFORNIA ENERGY

WASHINGTON D.C. – Governor Gray Davis and Senator Dianne Feinstein made the following statement regarding California’s electricity market: "The declaration of a statewide Stage 3 energy emergency in California in the middle of December and 30 Stage 2 emergencies since May is not only unprecedented, but indicates that these shortages can happen at virtually any time.

"Additionally, the price of power has risen astronomically on the spot market and may very well bankrupt two of California’s major utilities: Pacific Gas & Electric and Southern California Edison.

"We are united in asking that the Federal Energy Regulatory Commission (FERC) establish an immediate region-wide wholesale price cap to stop the bleeding of electricity from California until stability can be returned to the market. We are also calling on FERC to step in and mandate reasonable long-term contracts between privately owned electricity generators and utilities.

"One of the reasons for the absence of adequate power in December in California is the fact that energy producers are now receiving much higher rates for their energy in nearby states without caps. This clearly highlights the problem with a cap that only applies to California and reinforces the need for a region-wide price cap.

"Because of California’s size, the state is ripe for electricity price gouging. Unlike a small state that utilizes very little energy, California’s energy requirements are large and constant. Right now, growers are deeply concerned in the event of a freeze tonight they will not be able to protect their crops, particularly citrus.

"We have also received dozens of letters from employees who have lost their jobs due to employers’ inability to either provide electricity or cover their costs of electricity, particularly now in combination with escalating natural gas prices. Additionally, as more computers come online every day and remain on, the demand for energy is rising.

"Last week, FERC dropped the hard wholesale cap and power costs have soared to as much as $1,400 per megawatt hour on the spot market. That means that a supplier has to buy at that price, but can only sell that amount at about $64. And so they cannot recover costs, and this is what is driving Southern California Edison and PG&E closer to bankruptcy.

"One of the reasons for inadequate power in December is the fact that energy producers are selling power generated in the State to out-of-state customers. It is estimated that at least 4,000 to 5,000 megawatts leaves the State daily this time of the year.

"Additionally, one-third of the generating plants have been down for maintenance. The utilities tell us that before the system was deregulated, maintenance was scheduled and planned to avoid these shortages. Clearly adequate scheduling and planning has not taken place under California’s abrupt deregulatory scheme.

"We are very pleased that the California Public Utilities Commission (PUC) has permitted bilateral contracting which locks in power at much more reasonable rates. And now, we are asking FERC to mandate this as well for the private generators.

"Two of California’s major investor owned electrical utilities are in the process of having their credit ratings downsized, their stocks have plummeted and they have been unable to gain adequate financing because of the out-of-control situation in the State.

"We have implored FERC to respond to this crisis so that California’s terrible dependence on spot prices can end. Had these contracts been in place, today’s problem may have been averted.

"It is clear to both of us that there is little price elasticity for electricity. It has become a staple of life. People cannot do without electricity in the modern world. And people and businesses are limited in what they can pay for it.

"It is our strong belief that unless both FERC and the State PUC take strong action, the lights throughout major areas of California may well go out."

GOVERNOR GRAY DAVIS · SACRAMENTO, CALIFORNIA 95814 · (916) 445-2841

The California Independent System Operator (California ISO) declared a Stage One Emergency at 6:00
a.m. today, Wednesday, December 13, 2000. The forecasted consumption of electricity is expected to peak by 6:00
p.m. today and increase to an estimated 34,152. Operating reserves to maintain reliability of the Grid are projected to fall
below seven percent. The California ISO is asking customers to voluntarily reduce their use of electricity through
midnight to prevent more severe curtailment measures.

The Stage One is being issued on the tenth day of a severe shortage of electricity in the Western U.S. A cold
snap has dramatically reduced the flow of imports from the Northwest causing California to rely heavily on in-state
generation, 8,500 megawatts of which is off line due to planned or unplanned maintenance.
Stage One of the state’s Electrical Emergency Plan is initiated to advise the public of potential power shortages
and to ask all customers to conserve electricity to ensure there will be enough power to meet future demand. The request
for demand reduction is not intended to disrupt employment or curtail industrial production or commerce. However, if
the conservation measures are insufficient in lowering the demand for power, load management programs that
implement voluntary curtailments of power are probable.

A Stage Two is declared when reserves drop below five percent. At this level, large commercial customers that
have signed up to voluntarily curtail power during high demand days will be asked to do so. If an operating reserve shortfall of less than one-and-a-half percent is unavoidable, Stage Three is initiated. Involuntary curtailments of service
to customers including “rotating blackouts” are possible during this emergency declaration. The California ISO’s
Electrical Emergency Plan (EEP) is part of the state’s enhanced reliability standards enacted by landmark legislation
Assembly Bill 1890 that led to the restructuring of California’s electricity industry.

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 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 vast 12,500 circuit
miles of “electron highway”.

Continuously updated information about the California ISO control area’s electricity supply and the
current demand on the power grid is available on the web at www.caiso.com.
Media Teleconference Briefings will be held, once again, today:

1 800 374-1387
Pass code: 982640
Times: 11:00 a.m., 2:00 p.m., 6:16 p.m.

Tuesday, December 12

The California ISO declared a Stage One Emergency at 1:30 a.m. today, Tuesday, December 12, 2000 effective through 10:00 p.m. Today’s forecasted peak demand on the grid is expected to reach 34,225 megawatts at around 6:00 p.m. tonight. Supply and demand conditions remain about the same: approximately 8,500 megawatts of in-state power generation continues to be off line due to maintenance and imports from the Pacific Northwest are limited by the cold weather and high demand (although this limitation is still not as severe as previously expected). Congestion on the major transmission path between southern and northern California (Path 15) is expected to be a factor again today. Click here for the ISO news release.
Also today, the Idaho PUC approved a demand bidding tariff requested by Avista. On Saturday, the Washington Utilities and Transportation Commission approved the tariff for Avista and a similar tariff for Puget Sound Energy. On Friday, the Oregon PUC approved a demand bidding tariff proposed by PacifiCorp and an expanded a demand bidding program by Portland General Electric. The Washington UTC is expected to act on PacifiCorp’s demand bidding tariff tomorrow. The company is planning to file a similar tariff with other PUCs beginning this week.

Monday, December 11

Today’s forecasted peak demand in the California ISO is expected to reach 33,952 megawatts at around 6:00 p.m. A Stage One Emergency is called whenever generation reserve margins in the California ISO are expected to fall below 7.5 percent. In an effort to better accommodate growing media interest, the California ISO will provide regular information updates immediately following operations meetings held on days that the statewide Electrical Emergency Plan is activated. News teleconferences will include an opportunity for questions and answers.

TELECONFERENCES FOR POWER SITUATION UPDATES
DATE: Monday, December 11, 2000
PHONE NUMBER: 800/374-1387
TIME (All PST): 11:00 a.m. 2:00 p.m. 6:15 p.m.
PASSCODES: 982402 982591 982640

In the Northwest, a Warning of Potential Stage 2 Alert remains in effect. Continuation of the Northwest Warning of Potential Stage 2 Alert will be reconsidered tomorrow, Tuesday, December 12. Note that the definitions of stages of alert are different in California and the Northwest. Click here for the penultimate draft of the “Proposed Pacific Northwest Winter 2000-01 Energy Emergency Plan, November 2000.”

On Monday, December 11 at 11:30 a.m. PST, the U.S. Department of Energy held a 30 minute conference call on the electricity and gas supply situation in the West. Notes from the call indicate:

The California ISO has issued a Stage 1 alert that will likely escalate to Stage 2 by this evening. This represents warmer weather than was expected initially.

In northern California there is concern about an inability to serve non-core natural gas customers. Temperatures would have to drop into the mid-30s before the situation becomes critical.

Gas supplies are adequate to serve core and non-core customers in southern California. Temperatures would have to drop into the 40s before gas supplies become critical.

The Stage 2 warning remains in place in the Northwest Power Pool. The Northwest forecast for tomorrow is a little warming that initially anticipated.

The Navy is considering load shedding in its shipyard facilities, ships, housing and general areas. Navy generating facilities could also be used if necessary.

The federal General Services Administration is reviewing curtailment plans at federal facilities.

No further conference calls are planning by DOE at this time.

On Sunday, Kaiser Aluminum officials have decided they can make more money selling their power than they can producing aluminum. The company announced yesterday it will stop all aluminum production in Washington state for the next 10 months and begin selling back to suppliers the electricity it would have used in its smelter plants. The move will completely shut down the company's Spokane smelter, resulting in the layoff of 400 workers. By selling its December power alone, Kaiser will make $52 million - a windfall for a company that lost $54 million last year after a prolonged strike by workers. (Seattle Times)

Sen. Murkowski (R-AK), chairman of the Senate Energy, and Sen. Jeff Bingaman (D-NM) Ranking Minority Member, have called for an oversight hearing into high natural gas prices. The hear will be at 9:30 EST on Tuesday, December 12. Click here for the Live Webcast Scheduled.