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i These estimates do not reflect the potential for distributed generation. ii Source: California Energy Commission. iii The PUC regulates investor-owned utilities. Municipal utilities (for example, Sacramento Municipal Utility District) and irrigation districts (for example Imperial Irrigation District) are self-regulating public agencies. iv The Biennial Resource Plan Update, I.89-07-004. v PUC Decision (D.) 95-12-059. vi Statutes of 1996, Chapter 854, Brulte. vii Competition Transition Charge. viii PUC Decision (D.) 99-05-051. ix The ISO combines the control areas of PG&E, SCE and SDG&E; reserve margins are calculated on an ISO-wide basis. x "Notice to Market Participants", ISO, undated. xi It should be noted that in order to maintain a reliable transmission system the WSCC developed Control Performance Standards that require each control area, such as the CAISO, to monitor its frequency every ten minutes. The average for each six 10-minute periods during the hour must be within specific limits as defined by the North American Electric Reliability Council (NERC). For June 13th the CAISO had 29 Control Performance Standards (CPS2) violations of which 17 were attributed to uninstructed deviations. The CPS2 violations are still under investigation and could result in the WSCC assessing monetary penalties to the CAISO. The CAISO will provide further information as it becomes available. xii PG&E's previous all-time high peak load was 23,100 MW. xiii The customers that were shed include commercial, industrial and residential customers. xiv The rotating outage block system has undergone little analysis or review in decades, and is ripe for revisiting. After being used for the first time ever on June 14, the system was criticized as being potentially unfair to low-income neighborhoods (no evidence of such unfairness was uncovered in a preliminary PUC staff analysis), and inefficient in its operation. PG&E inadvertently blacked out at least one critical facility - the Good Samaritan Hospital in San Jose. xv This estimate applies the wholesale spot price of energy, as published by the PX, to the total volume of energy consumed by retail customers of the State's investor-owned utilities and by consumers who have opted to buy their energy from third parties (electric service providers or ESPs). xvi Utility bills are comprised of a rate for transmission service, which is regulated solely by FERC, and for distribution service, which is still regulated by the PUC and for "generation" which is the rate that reflects the wholesale power market that has been restructured. xvii Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953, at 970; 90 L.Ed.2d 943; 106 S.Ct. 2349 (1986) xviii Public Utilities Code Section 739 and PUC Decision (D.) 89-09-043. xix The information refers to prices in the Power Exchange's Day-ahead market. xx Source: Electricity Oversight Board. xxi San Francisco Chronicle, July 27, 2000, page A8. xxii The federal appeals courts have not unanimously endorsed this approach. xxiii The resistance of the ISO and wholesale generators to disclosure of information about power plant operation or market behavior may be unlawful to the CPUC or EOB. The Federal Power Act explicitly provides that a state commission may examine the "books, accounts, memoranda,, contracts, and records..." of an electric utility or an exempt wholesale generator selling to an electric utility or an associate or affiliate of an exempt wholesale generator, "...wherever located, if such an examination is required for the effective discharge of the state commission's regulatory responsibilities affecting the provision of electric service, subject to appropriate restrictions on subsequent disclosure by the commission. 16 USC section 824(g). Any attempt to resist disclosure of power plant operations data, including its relevance to market behavior, on the basis of an ISO tariff provision approved by FERC is undermined by the Federal Power Act's provision precluding commission jurisdiction over "facilities used for the generation of electric energy...." 16 USC section 824(b) xxiv Power plant names and capacities confidential per ISO. xxv PUC staff study. xxvi Source: City of Santa Clara xxvii Source: Independent System Operator xxviii Southern California Edison Company, et al., (1995) 70 FERC ¶ 61, 215, at p. 61,677. xxix "Digital Economy 2000", US Department of Commerce June 2000 xxx See, for example, "Electricity Restructuring: Deregulation or Reregulation, February 2000, by Severin Borenstein and James Bushnell. xxxi PUC staff study. xxxii Ibid. xxxiii Public Utility Regulatory Policy Act (PURPA) 16 U.S.C. §2601 et seq. xxxiv The Public Benefit of California's Investment in Energy Efficiency, Mark Bernstein, Robert Lempert, David Loughran, and David Ortiz, MR-1212.0-CEC, 2000. xxxv Cal. Pub. Res. Code §§ 21000 et. seq. xxxvi 42 U.S.C. §§ 7401 et. seq. xxxvii Pub. Res. Code §21080(b). 14 Cal. Code Reg. §15269. xxxviii Western Mun. Water Dist. v. Superior Court,187 Cal.App.3d 1104 (1986), Castaic Lake Water Agency v. City of Santa Clarita, 41 Cal.App.4th 1257 (1995). xxxix Cal Health and Safety Code, §§39002, 40001. xl California Almanac of Emissions and Air Quality, Air Resources Board (1999). xli Market Surveillance Committee Report, July 6, 2000. xlii See "Electricity Restructuring: Deregulation or Re-regulation?" page 9, February 2000. Governor Gray DavisJune 15, 2000
Dear President Lynch and Chairman Kahn: I am advised that electricity power plant and transmission maintenance problems caused interruptions in the supply of electricity to consumers throughout the San Francisco Bay Area. Compounded by severe hot weather, these electrical supply and voltage support problems experienced by residential, commercial and industrial customers resulted in inconvenience and economic losses throughout the region. To reduce the drain on energy during this episode, I directed State agencies and facilities in the Bay Area immediately to institute energy management practices aimed at reducing energy use. The safety and reliability, affordability and fairness of California's energy system are of paramount concern and cannot be compromised. Ensuring a reliable electric system is central to the health and safety of every Californian as well as California's continued economic growth. Existing generation capacity simply must be available to use when Californians need the power. I am directing you to exercise your respective authority to investigate the circumstances, including the reasons for the generation maintenance and transmission problems and related impact on electricity prices and advise me on actions that can be taken to avoid recurrence of this situation. Report back to me by August 1 your findings and recommendations for solving them. Sincerely, GRAY DAVIS State Capitol _ Sacramento _ California _ 95814 _ (916) 445-2841 ATTACHMENT 2Profits of Unregulated California GeneratorsSource: Press releases. Reported earnings are for the entire company, not specifically for subsidiaries which own generation assets serving the California market (unless otherwise noted). · AES Corporation - Announced on July 27, 2000, that net income was $111 million for the quarter ended June 30, 2000, a 56% increase over net income of $71 million for the second quarter of 1999. (4066 MW) · Calpine Corporation - On July 24 Calpine announced net income for the quarter ended June 30, 2000 of $51.7 million, representing a 176% increase compared to net income of $18.7 million before extraordinary charge for the same period in 1999. (871 MW) · Duke Energy - reported earnings before interest and taxes (EBIT) of $837 million for the second quarter of 2000 for its gas and electric businesses, compared to $568 million for the same quarter last year - an increase of 47%. (2950 MW) · Dynegy - reported recurring net income for second quarter of 2000 of $90.6 million compared to $28 million for the same quarter last year - an increase of 223%. (2705 MW, 1550 MW of which is co-owned with NRG) · NRG Energy - Net income for quarter ending June 2000 increased to $43.6 million from $2.3 million for the same period last year, an 18 fold increase. (1550 MW co-owned with Dynegy) · PG&E National Energy Group - On July 20 the NEG announced earnings from operations in the second quarter of $0.10 per share on a diluted basis, or $37 million. This reflects a 233% increase over diluted earnings of $0.03 per share, or $10 million, from the same quarter last year. · Reliant Energy (formerly Houston Industries) -On July 27 announced second quarter adjusted earnings per share increased 77% over the same period last year. The company's earnings before an extraordinary gain for the second quarter of 2000 were $216 million, or $.76 per share, compared to adjusted earnings of $123 million, or $.43 per share, for the second quarter of 1999. (3531 MW) · Sempra Energy - Based on increased profits at its energy trading and international units, Sempra Energy reported on July 27 unaudited consolidated net income of $110 million, or 55 cents per diluted share of common stock, for the second quarter of 2000, up 34% over last year's second-quarter net income of $82 million, or 35 cents per diluted share. · Southern Company - reports earnings of $342 million for the quarter ending June 2000 compared to $314 million for the same quarter in 1999, a 9% increase. (3065 MW) ATTACHMENT 3Ten Potential Actions to Prepare for an Electricity Emergency 11. Require utilities to update outage plans to ensure that (a) the least possible number of customer black-outs in the event of an emergency; (b) essential services (hospitals, emergency dispatch, etc.) retain power and (c) any black-outs are fairly distributed among the State's affected population; 12. Authorize the California Public Utilities Commission working with the utilities to determine when to shut off electricity in a Stage 3 emergency; 13. Ensure that computer models used to predict and trigger black-outs and service interruptions are accurate and publicly certified so that black-outs and service interruptions do not occur unless no other option exists; 14. Call on the federal government and local governments to inventory emergency generation capability in California; institute preparedness plans to switch local and federal buildings to emergency generation to bring loads off the electric system in the a crisis; 15. Design gear-down plans (versus shut-down) to reduce unnecessary power use in all state facilities and request local and state facilities to do the same when electricity reserves drop below 5% -- such as turning off lobby lights; turning up air conditioning; turning off nonessential lights, equipment and technology; 16. Hook up commercial buildings, on a voluntary basis through the internet, to an emergency management control system to enable reductions in unnecessary commercial power use (turning off lobby lighting; turning up air conditioning; turning off nonessential lights, equipment and technology) when reserves drop below 5%; 17. Require utilities to identify large electricity users in each region and to develop with these customers a program voluntarily to shed nonessential load in emergencies; 18. Identify, prioritize and coordinate with state and regional agencies, private companies and utilities to obtain air emissions offsets and credits to run existing emergency generation; 19. Coordinate with utilities and municipal power agencies to identify and prioritize additional sources of emergency generation available for emergency use. 20. Inventory all state emergency generation; test it for readiness and prepare to switch state buildings to emergency generation to bring state loads off the electric system in a Stage 3 emergency; ATTACHMENT 4Ten Actions to Consider or Act Upon to Prevent Current Electricity Problems From Spreading in 2001 11. Request that the Attorney General expand his investigation statewide and launch PUC/EOB investigation of market manipulation in wholesale electricity purchasing, scheduling and pricing, coordinating with the California Attorney General; 12. Create a California Energy Council, modeled on the National Security Council, to unify State action to resolve energy problems and to perform integrated energy planning; 13. Ask FERC for extended wholesale price cap authority to moderate California wholesale market pricing; 14. Ask FERC to recognize the defects in the California and western regional markets and find that no competitive market exists in California power markets; 15. Invest in an effective energy efficiency programs to reduce base load, including, assuring energy efficiency in all state buildings; 16. Invest in demand side management/load shifting programs to reduce peak loads; 17. Invest in renewable energy development that can be up and running for Summer 2001; 18. Eliminate potential conflicts of interest in ISO/PX stakeholder boards; 19. Improve California's ability to obtain ISO and generator data and enhance the State's enforcement capability for power plant maintenance; price manipulation and generation gaming, consistent with protection of proprietary business information; 20. Provide the EOB with effective enforcement ability and additional oversight authority for the ISO and PX. ATTACHMENT 5Ten Issues to Consider or Act Upon Within the Next Six Months11. Given that retail price caps might result in unintended consequences and further market disruption, it is essential to investigate the impacts of modifying those price caps. After establishing the facts, address feasibility of imposing transitional retail price caps in San Diego; 12. Evaluate additional price management tools for utilities, including bilateral contracts and hedging authority; 13. Revise and accelerate Title 24 building standards to reduce unnecessary energy use; 14. Streamline state power plant siting procedures; consistent with environmental requirements, and prioritize applications to advance clean, BACT+ power plant proposals. 15. Institute "use-it -or- lose-it" permitting power plant licensing and emissions credits rules to ensure power plants get built; 16. Invest in targeted transmission upgrades to add capacity and enhance system reliability by Summer 2001, especially in San Diego and San Francisco; 17. After establishing the facts, procedural options, and long-term consequences, address feasibility of extending the transition period and retail rate freeze throughout the State; 18. Reform PX pricing protocols and structures to lower wholesale and retail prices and reduce excess profits; 19. Evaluate utilities' role as providers of last resort; 20. Determine distribution generation standards and rules for small power generator connection to the electricity grid. ATTACHMENT 6
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