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Getting the Energy Facts Right (cont.)

Along with this, the editorial presents as fact that the City broke “the original contract with PG&E”
and decided instead to “go with Enron”. Further, the editorial concludes that, even though PG&E
had gone into Chapter 11 bankruptcy, “we suspect it would have continued to service Palo Alto.”

In fact, the City did not break any power contract with PG&E. And in fact, the events of the 2001
energy crisis show that PG&E did not continue to service Palo Alto.

In 2001, Palo Alto received 55% of its electricity via the Western Area Power Administration’s
contract with PG&E at a price of $22 per megawatt-hour. Then the market price of power spiked
to levels 10 to 15 times higher than this contract price. PG&E went to FERC and unilaterally
attempted to raise our cost of electricity to market price. In addition, industry legal and technical
experts expected PG&E to attempt to void the contract. We and other customers vigorously
fought this effort; we ultimately succeeded. If PG&E had been successful, Palo Alto would be
buying over one half of its electric needs on the open wholesale market at peak hour costs of
more than $300/MWhr.

So in fact, rather than “break(ing) the original contract with PG&E” the City fought at every point to
keep the original contract intact and hold PG&E accountable for its performance under the
contract.

The editorial’s conclusion that PG&E “would have continued to service Palo Alto” is not only
disproved by PG&E’s efforts above. In fact, it is disproved by history because PG&E did indeed
black-out Palo Alto. In 2001, PG&E lacked sufficient generation capacity to provide electricity to it
customers, including Palo Alto. Rather than buy electricity on the open market (at back-breaking
prices), PG&E demanded that our customers’ lights go out.

The editorial several times implies that buying from Enron was a mistake. Given today’s
hindsight, that’s seems an easy call.