August 2, 2000


Attorney General Bill Lockyer
1300 I Street
Suite 1730
Sacramento, CA 95814

Dear Attorney General Lockyer:

On June 14, 2000, the San Francisco Bay area experienced energy shortages during an unseasonably hot day, resulting in blackouts for tens of thousands of customers. Today, the Independent System Operator has indicated that California may experience power supply shortages to 90,000 homes or more statewide. We face this continuing threat daily during the summer season when energy usage is at its peak. Simultaneously, electricity bills for customers have doubled in San Diego, the only area in the nation that has experienced full deregulation of the energy industry.

These events prompted me to ask the Chair of the Public Utilities Commission and the Chair of the Electricity Oversight Board to immediately investigate the conditions that are contributing to these serious energy problems. They have responded with a report and recommendations, a copy of which is attached.

The report suggests that, "…the system is operating in ways that are contrary to the public interest." Analytical and anecdotal information is included to support this finding.

Given the volatile nature of wholesale price fluctuations and the apparent opportunities for manipulation that exist in an electricity market that is not yet developed, investigation of possible manipulation in the wholesale electricity marketplace is recommended and, I believe, warranted. Such an investigation will highlight any market manipulation and price abuses. Futher, it will serve to restore consumer confidence in the emerging electricity market, and will provide valuable guidance as we attempt to resolve the underlying problems.

Therefore, I request that you undertake a full investigation of the operations of the wholesale market for electricity in California.