| FERC ISSUES FINAL ORDER ON CALIFORNIA'S MARKET PROBLEMS; RESPONS=
+E=20
+ IS MIXED 12/27/2000 Foster Electric Report Page 2= +=20 + (c) Copyright 2000, Foster Associates, Inc.=20 + + While several Commissioners were less than happy with some of the = +final=20 + provisions, all four FERC Commissioners approved a final comprehensiv= +e=20 + 12/15/00 order (EL00-95, et al.) reforming California's troubled=20 + electricity markets. + Overview + The order largely reflects a Nov. 1 order that made certain immedi= +ate=20 + changes to California's wholesale power markets and proposed several= +=20 + others. Chief among the measures proposed and now adopted were those= +=20 + designed to move most wholesale transactions into forward markets,=20 + including eliminating the requirement that the three California=20 + investor-owned utilities (IOUs) buy and sell their power through the= +=20 + California Power Exchange (PX). As a result, the IOUs will no longer = +have=20 + to purchase all 40,000 MWs of their purchase power needs on the whole= +sale=20 + spot market. In addition, the order allows the IOUs to sell the 25,00= +0 MW=20 + of power that they own or have under contract to retail buyers at=20 + state-regulated rates; previously, this power had to be sold at whole= +sale=20 + into the PX. The Commission estimates that this measure will allow ab= +out=20 + 60 percent of California's power market on peak days, and up to 90 pe= +rcent=20 + on off-peak days, to be "defederalized," i.e., priced at cost-based r= +ates=20 + or any other way that the California Public Utilities Commission (CPU= +C)=20 + deems appropriate. + FERC also strongly encouraged utilities to enter contracts of two = +or=20 + more years to meet their load requirements. To move this process alon= +g,=20 + FERC will terminate the PX's rate schedules on April 30. FERC also=20 + established a $74/MWh "benchmark" for assessing the prudence of long-= +term=20 + bilateral contract prices. Not meant to be a floor for such deals, th= +e=20 + benchmark is based on historical data and applies to five-year deals= +=20 + reached over the next 12 months. + To reduce the IOUs' reliance on the California Independent System= +=20 + Operator, Inc.'s (CA-ISO's) real-time spot markets further, FERC will= +=20 + penalize utilities that fail to schedule more than 95 percent of thei= +r=20 + transactions in forward markets. Loads exceeding this deviation band = +will=20 + be penalized twice the CA-ISO's real-time energy cost for any purchas= +e of=20 + balancing energy during the hour, capped at the actual imbalance cost= + plus=20 + $100/MWh. + Another order highlight was the establishment of a $150/MWh "trigg= +er"=20 + point or "breakpoint" for bids into the CA-ISO. While staffers refuse= +d to=20 + describe this mechanism as a "soft" price cap, bids over $150/MWh wil= +l be=20 + accepted but will no longer set the market-clearing price and will tr= +igger=20 + reporting requirements and FERC monitoring. In a major change from th= +e=20 + Nov. 1 order, this trigger point will expire at the end of April inst= +ead=20 + of two years. Meanwhile, FERC staff will hold a technical conference = +to=20 + develop a systematic market monitoring and mitigation program for the= +=20 + CA-ISO's spot markets. A program proposal is due on March 1 so that i= +t can=20 + be implemented by May 1. The Commission also clarified that unless FE= +RC=20 + tells a bidder that a price above the cap is still under review, any= +=20 + refund liability expires after 60 days. The current order did not add= +ress=20 + the issue of retroactive refunds. + In another step back from the Nov. 1 order's proposals, the Commis= +sion=20 + is no longer insisting that it alone will determine how a new,=20 + non-stakeholder CA-ISO board will be chosen. Instead, FERC will overs= +ee=20 + this process in coordination with state officials. Since finding new = +board=20 + members will take some time and the Commission wants a better CA- ISO= +=20 + governance structure before then, the current board members must yiel= +d=20 + their decisionmaking and operating control to the CA-ISO's management= + on=20 + Jan. 29. The current board may continue in an advisory role until Apr= +il 27=20 + or a new board is in place, whichever occurs first. The Commission al= +so=20 + backed away from a similar proposal to replace the PX's current board= +,=20 + citing the PX's reduced market role. + The Commission refused to act on suggestions to establish a region= +al=20 + price cap. In discussions during the Commission's special Dec. 15 mee= +ting=20 + addressing California issues, Chairman James Hoecker pointed out the= +=20 + difficulties in establishing a regional cap, including the lack of a = +spot=20 + market in the Pacific Northwest to cap, and FERC's lack of authority = +over=20 + the Bonneville Power Administration and other large public power enti= +ties.=20 + Commissioner William Massey, however, would have opened a Federal Pow= +er=20 + Act section 206 investigation of wholesale power prices in the entire= +=20 + Western Interconnection, a step his legal staff said would be a precu= +rsor=20 + to any regional price relief. (In a related story, we cover a meeting= +=20 + convened by Energy Secretary Bill Richardson where western state offi= +cials=20 + discussed possible solutions to regional power market problems.) + Finally, among other actions, the Commission (1) directed the CA-I= +SO=20 + and the three IOUs to file generation interconnection procedures, (2)= + told=20 + the CA-ISO to file a new congestion management design proposal by Apr= +il 2,=20 + and (3) established a settlement conference (PL01-2) among state and= +=20 + federal officials and market participants to consider how any long-te= +rm=20 + deals should be structured (see related story, this REPORT). Regardin= +g the=20 + settlement conference, the Commission recognizes that California's IO= +Us=20 + are concerned that the CPUC may second guess negotiated contracts. Th= +us,=20 + at the behest of PG&E and Secretary Richardson, FERC scheduled th= +e=20 + conference to provide a discussion forum to help negotiate forward=20 + contracts that would be acceptable to the sellers, purchasing utiliti= +es=20 + and the CPUC. + Commission Discussion + Despite the above measures, various Commissioners during the Dec. = +15=20 + meeting stressed that much more work needs to be done to stem the cur= +rent=20 + electricity "crisis" in California, but most of the issues raised are= +=20 + outside FERC's purview. + The process of rehabilitating the market "has at its core state=20 + regulation," Chairman Hoecker stated. "The responsiveness of electric= +ity=20 + demand . . . as well as the supply picture are beyond [FERC's] immedi= +ate=20 + control and influence and must be worked through by state regulators,= + or=20 + the markets, or both." He also noted that the CPUC's support of bilat= +eral=20 + contracts is "critical" to stemming the current power crisis. + Listing the myriad of problems facing California's power markets,= +=20 + Hoecker repeatedly noted that the state, not FERC, designed the curre= +nt=20 + market structure and has refused to site any new generation plants fo= +r=20 + close to a decade. When the California Legislature enacted a competit= +ion=20 + bill in 1996, Hoecker asserted, "there was no truth in advertising"= +=20 + because California's version of competition "was a disaster in its=20 + application, no question about it." But Hoecker insisted that Califor= +nia's=20 + flawed attempt at electric competition -- which he insisted was reall= +y a=20 + command-and-control design and not real deregulation -- does not mean= + that=20 + all competitive power markets will fail. + In Hoecker's view, "competition did not fail in principle at eithe= +r the=20 + wholesale or retail levels in California because it was never well=20 + conceived or fully tried." Thus, "to those charter members of the Fla= +t=20 + Earth Society who would return to heavily regulated monopolies, I wou= +ld=20 + say, it's time to look forward, not backward," Hoecker declared. + To that end, he said the instant order will begin the rehabilitati= +on=20 + process by promoting price stability, reinforcing utility credit=20 + worthiness, and "shrinking" the influence of California's spot market= +.=20 + However, Hoecker added, "no price cap or market design can make it ra= +in or=20 + build a generator. No amount of government intervention can moderate = +the=20 + weather or persuade a homeowner not to dry clothes at 4 p.m. Likewise= +, no=20 + piece of legislation can invent a market and all the necessary rules = +or=20 + erase the regionality of the electricity market or the mutual depende= +nce=20 + of the electricity systems in the West." Hoecker then pledged to coop= +erate=20 + with state officials, whom he urged to focus on possible cooperative= +=20 + solutions and not "conspiracy theories." + As he did with the Nov. 1 order, Commissioner Curt Hebert Jr. issu= +ed a=20 + concurrence outlining provisions of the current order that he would= +=20 + change. Like Commissioner Massey, however, he voted for the order bec= +ause=20 + of its other, more favorable provisions. "Today's order is not optima= +l=20 + from my perspective or, I suppose, from the perspective of any other= +=20 + Commissioner," Hebert stated. "But it represents a balanced, consider= +ate=20 + approach that has won the approval of all four members of the Commiss= +ion." + Among other provisions, Hebert was pleased with FERC's unequivocal= +=20 + commitment to competitive markets despite the current turmoil. He als= +o=20 + applauded the Commission for allowing the $150/MWh trigger point to r= +emain=20 + in place only until the end of April. "The fact that the cap goes awa= +y in=20 + four months tells the politicians in California to remove impediments= + to=20 + supply immediately. If such impediments are not removed, the people o= +f=20 + California should know precisely where to place the blame," Hebert=20 + declared. + Nevertheless, Hebert saw the order as a "missed opportunity" for m= +ore=20 + decisive FERC action. "Timidity is no longer excusable," Hebert conti= +nued.=20 + "The Commission needs to act now to ensure that energy suppliers have= + an=20 + incentive to enter capacity-starved California markets, that local=20 + load-serving utilities have strong reason to hedge against price risk= +,=20 + that entrepreneurs have a motivation to develop new products and=20 + technologies, and that consumers share a motivation to conserve." + Hebert was also disappointed with FERC's decision to establish a= +=20 + $74/MWh benchmark price for wholesale bilateral contracts, calling th= +e=20 + benchmark price "close to arbitrary" and claiming it serves no real= +=20 + purpose. However, he understands that the Commission is trying to mot= +ivate=20 + the CPUC to adopt its own benchmark and safe harbor for generation=20 + purchases by California utilities given the state regulators' "histor= +ic=20 + eagerness" to second guess long-term purchase decisions after the fac= +t. He=20 + wrote, "California's concern for price is understandable. It justifia= +bly=20 + might think that California utilities might cut better, lower-priced = +deals=20 + in later months or years. However, at this critical juncture, Califor= +nia's=20 + principal concern must now be supply. The state must now take immedia= +te=20 + action to free up supply for California customers by informing willin= +g=20 + sellers and buyers --right now -- that long-term sales at reasonable,= +=20 + historically-justified prices are acceptable (if not preferable). Thi= +s is=20 + the only real way to mitigate exposure to high, volatile prices in th= +e=20 + spot market." + Calling the situation in California's power markets an "apocalypse= +,"=20 + Commissioner William Massey was particular concerned that the IOUs ma= +y be=20 + on the verge of bankruptcy because of their inability to recover thei= +r=20 + power-purchase costs. "It seems rather clear to me that some day soon= + a=20 + federal court, if asked, will declare that the utilities are entitled= + as a=20 + matter of federal preemption to recover these high wholesale costs fr= +om=20 + their customers," he noted. "And once these costs are passed through,= + of=20 + course the entire state, not just San Diego, will be in a perfectly= +=20 + legitimate and understandable uproar." + Massey believes that the current order "forcefully deals with a nu= +mber=20 + of critical issues," including encouraging the CA-ISO to adopt a new= +=20 + congestion management system and locational marginal pricing system s= +uch=20 + as that being used in the Pennsylvania-New Jersey-Maryland=20 + Interconnection. Like Hebert, however, Massey saw some shortcomings w= +ith=20 + the current order, including its (1) failure to find sufficient evide= +nce=20 + of specific instances of the exercise of market power; (2) establishm= +ent=20 + of the so-called $150/MWh break point, preferring a hard price cap=20 + calculated generator by generator; (3) a $74/MWh benchmark for a five= +-year=20 + contract, claiming that it would be more appropriate for a two-year= +=20 + contract; (4) refusal to open a section 206 investigation into wholes= +ale=20 + prices in the entire western interconnection, a precursor for any typ= +e of=20 + region-wide price relief; and (5) failure to explore retroactive refu= +nds=20 + and other customer relief measures. + Finally, Commissioner Linda Breathitt said she also does not like = +every=20 + aspect of the current order, but said "in totality," it is a good ord= +er. + Background + On Nov. 1 FERC released the results of its staff's investigation i= +nto=20 + California's wholesale power markets, an investigation ordered in res= +ponse=20 + to a complaint filed by SDG&E and continuing market turmoil and= +=20 + tremendously high prices. The report identified the following three= +=20 + factors as contributing to high electricity prices in California: (1)= +=20 + significantly increased power production costs combined with increase= +d=20 + demand due to unusually high temperatures and a scarcity of available= +=20 + generation resources throughout the West and California; (2) market r= +ules=20 + that exposed the three IOUs to the volatility of the CA-ISO's spot ma= +rket=20 + without the ability to hedge price volatility, and that promoted=20 + underscheduling in the PX and thus much more use of the CA-ISO's real= +-time=20 + markets than originally planned; and (3) the potential for sellers to= +=20 + exercise market power, although FERC did not have enough data to find= + any=20 + exercise of market power by individual sellers. (See REPORT No.204, p= +g.10) + Based on its staff's findings, FERC issued a concurrent order taki= +ng=20 + certain immediate actions and proposing several others. The immediate= +=20 + actions taken by FERC included (1) refusing to impose a $350/MWh cap = +for=20 + power being sold through the PX; (2) ordering a $250/MWh CA-ISO purch= +ase=20 + price cap and $100/MWh price cap for replacement reserves until the e= +nd of=20 + the year; and (3) refusing to impose retroactive refunds, citing staf= +f's=20 + conclusion that FERC lacks the authority to do so and problems relate= +d to=20 + how the refunds would be calculated. + FERC also proposed several short-term remedies for California,=20 + including (1) eliminating the requirement that the three California I= +OUs=20 + must buy and sell power through the PX; (2) requiring market particip= +ants=20 + to schedule 95 percent of their transactions in the day- ahead market= +s or=20 + be subjected to a penalty charge to reduce chronic underscheduling an= +d=20 + overreliance on the CA-ISO's real-time market to meet supply; (3)=20 + replacing the existing PX and CA-ISO stakeholder boards with independ= +ent,=20 + non-stakeholder boards; (4) establishing generation interconnection= +=20 + procedures; and (5) establishing a $150/MWh "soft" price cap that wou= +ld=20 + take effect on January 1 and remain in place for two years. + As for longer-term measures, the Commission ordered the CA-ISO to = +(1)=20 + submit a congestion management design proposal; (2) explore permanent= +=20 + alternatives to its auction mechanisms; (3) implement demand-side res= +ponse=20 + programs; (4) assure sufficient reserve requirements; (5) enhance its= +=20 + market monitoring and market mitigation strategies; (6) eliminate the= +=20 + requirement for balanced schedules; and (7) explore a new approach to= +=20 + reserve requirements. (See REPORT No.204, pg.1) + After FERC subsequently held a technical conference to discuss the= + Nov.=20 + 1 order (see REPORT No.204, pg.7), California officials there and in= +=20 + written comments (see REPORT No.205, pg.1) blasted FERC's refusal to = +order=20 + retroactive refunds. Then, on Dec. 8, FERC granted an emergency petit= +ion=20 + by the CA-ISO to approve Amendment No. 33 (ER01-607) to its tariff. U= +nder=20 + the amendment, the CA-ISO abandoned its $250/MWh hard price cap for a= +=20 + $150/MWh "soft" price cap similar to that FERC proposed on Nov.1, and= + it=20 + can assess penalties on generators who refuse to respond to dispatch= +=20 + instruction during a system emergency. In a related Dec. 8 order (EL0= +0-95,=20 + et al.), the Commission approved a suggestion by Ridgewood Power -- t= +he=20 + operator of a qualifying facility -- to relax QF cogeneration operati= +ng=20 + efficiency and other regulatory requirements so that these facilities= + can=20 + use all their energy input to produce electricity (see REPORT No.206,= +=20 + pg.1). + The Dec. 15 Order + PX Buy/Sell Requirement -- Based on comments and dialog at the Nov= +ember=20 + 9 conference, FERC found that many parties believed that the primary = +price=20 + mitigation tool being proposed in the Nov. 1 order was the $150/MWh p= +rice=20 + cap. The current order clarified that this is not so. "Our primary pr= +ice=20 + mitigation is to eliminate undue reliance on the spot market so that = +price=20 + volatility in the spot markets will no longer have the ability to cau= +se=20 + the adverse economic consequences that it has to date," FERC stated. = +"In=20 + this context, the $150 breakpoint serves as a supplemental price=20 + mitigation measure." + For instance, the Commission noted that eliminating the PX buy/sel= +l=20 + requirement finally lets the IOUs mitigate their exposure to the spot= +=20 + market by allowing them to sign long-term bilateral contracts. In=20 + addition, the utilities can use the 25,000 MW of generation that they= +=20 + still own or have under contract to serve their own load "without hav= +ing=20 + to contract with anyone," and the CPUC can price these MWs at cost "o= +r any=20 + way it sees fit for setting retail rates." While refusing to dictate = +the=20 + appropriate balance between long and short-term purchases, FERC stron= +gly=20 + urged the IOUs to move their load to long-term contracts of two years= + or=20 + more. "Instructive in this regard is that other ISO markets maintain = +less=20 + than 20 percent in the ISO spot markets," FERC stated. + To "ensure that the market reforms proceed in a timely manner," FE= +RC=20 + will terminate the PX rate schedules effective on April 30, 2001. "Th= +e=20 + interim time period should allow parties sufficient time to negotiate= + and=20 + finalize alternative arrangements and to prepare a more balanced=20 + portfolio," FERC explained. "We believe that a longer time period wou= +ld=20 + merely protract negotiations in the critical summer period." + FERC also stressed that the most serious flaw in the current marke= +t=20 + design is the state requirement that the IOUs buy the balance of thei= +r=20 + load through the PX, and that the CPUC is the only one who can elimin= +ate=20 + this requirement. The order said, "Continued delay in making this=20 + fundamental change places all other aspects of our remedial plan at r= +isk,=20 + and prolongs the dysfunction of this market. When state policies prov= +ide=20 + that the only `safe harbor' from prudence reviews is in spot markets,= + the=20 + inevitable result will be excessive reliance on spot markets. Our=20 + elimination of the PX rate schedules will remove the medium for favor= +ing=20 + spot sales and should provide the IOUs with every incentive to purcha= +se=20 + the most cost-effective portfolio rather than to simply purchase in a= + PX." + The Pricing of Long-Term Contracts -- How long-term contracts shou= +ld be=20 + priced is a sticky problem, however. The CPUC has given mixed signals= + over=20 + what it will and will not approve, afraid that contracts signed in th= +e=20 + current environment will include excessive rates. Nevertheless, FERC = +said=20 + "it is crucial that the California commission moves quickly to provid= +e the=20 + IOUs with approval of their forward purchases. The specter of=20 + after-the-fact disallowance for transactions other than PX purchases = +has=20 + certainly chilled the decision making process and continues to subjec= +t=20 + California's ratepayers to the volatility of spot prices. California = +is in=20 + a state of economic emergency, and there is little chance that the IO= +Us=20 + will rise to the task if they are not afforded certainty." + To provide the CPUC some comfort, FERC stressed that it will be on= + a=20 + sharp lookout for the possible exercise of market power. It also sugg= +ested=20 + that power suppliers "have every bit as much incentive to avoid the= +=20 + volatility of the spot markets as do purchasers," citing the benefits= + of=20 + stable revenue streams produced by long-term contracts and what will = +be a=20 + shrinking spot market. On the other hand, the order noted that produc= +ers'=20 + natural gas and emissions costs have respectively risen from about $2= +=20 + MMBtu and $6/lb in 1999 to well more than $50 MMBtu and nearly $50/lb= + now.=20 + "Estimates of the cost of these inputs will heavily influence forward= +=20 + prices more than anything else," FERC stated. + Given this volatility, FERC will not mandate forward contracts at= +=20 + specified prices. Instead, it established a $74/MWh benchmark price f= +or=20 + five year contracts as a reference point in addressing any complaints= +=20 + regarding the pricing of long-term contracts negotiated over the next= +=20 + year. According to FERC, this benchmark should help dampen prices in = +what=20 + again could be a strong seller's market as utilities rush to secure= +=20 + long-term power supply contracts. In determining an appropriate bench= +mark,=20 + FERC noted that the average embedded generation cost component of the= +=20 + IOUs' rates before California's power market was restructured was abo= +ut=20 + $74/MWh. Duke Energy also recently offered to supply SDG&E's enti= +re=20 + 3,300 MWs of load for five years at a fixed price of $60/MWh, though = +it is=20 + now considering raising the offer to around $80/MWh because of soarin= +g=20 + fuel prices. + "While we do not have jurisdiction over retail rates, it is our vi= +ew=20 + that five-year contracts for supply around-the-clock executed at or b= +elow=20 + $74/MWh can be deemed prudent," the order stated. Further, the Commis= +sion=20 + stressed that the advisory benchmark "should not be interpreted as=20 + establishing a price floor on forward contracts, which may justify a = +lower=20 + per MWh price." As mentioned earlier, FERC set up a conference before= + one=20 + of its administrative law judges so that the IOUs, power suppliers, a= +nd=20 + state officials can together develop a mutually agreeable plan for th= +e=20 + initial round of forward contracts. In addition, to determine if the= +=20 + benchmark needs adjusting, the Commission directed all sellers with= +=20 + market-based rate authority to submit confidential reports by 1/2/01 = +on=20 + the long-term (greater than two years) products they are willing to o= +ffer=20 + in California, and at what price. + Underscheduling of Load and Resources -- Next, FERC generally adop= +ted=20 + the Nov. 1 order's proposal to penalize IOUs if they fail to presched= +ule=20 + more than 95 percent of their load. The Commission's hope is that thi= +s=20 + provision will allow the CA-ISO to focus on running the transmission= +=20 + system and not the marketplace. "Even at peak times, only about 2,000= + MW=20 + (i.e., about 5 percent of California's peak load) will now be in the= +=20 + real-time market, down two-thirds from the prior high of 6,000 MW," F= +ERC=20 + explained. "We again emphasize that this form of price mitigation is = +very=20 + effective without introducing traditional cost-of-service pricing whi= +ch=20 + reflects the cost of the assets without any regard to market conditio= +ns.=20 + Some form of administratively determined price would simply dampen th= +e=20 + supply response in the long run." + However, to encourage market entry and to accommodate the lack of= +=20 + real-time metering data, FERC modified its Nov. 1 proposal so that it= + will=20 + now allow a minimum 10 MW deviation for application of an underschedu= +ling=20 + penalty. Thus, the penalty will apply to the greater of 10 MW or 5 pe= +rcent=20 + of the underscheduled amount. In other words, the 5 percent deviation= + will=20 + apply to load of 200 MW or greater. Small entities with scheduling=20 + deviations within the 10 MW amount will not be assessed a penalty and= + will=20 + be considered as having scheduled accurately for penalty revenue=20 + distribution. + FERC rejected several suggestions that the deviation penalty apply= + to=20 + generation as well as load, noting the complexities of doing so as we= +ll as=20 + market changes that removes the economic incentives for suppliers to = +wait=20 + for the real-time market to sell power. + Breakpoint Level -- Next, the Commission adopted the $150/MWh=20 + "breakpoint" proposed in the Nov. 1 order, but did so only on an inte= +rim=20 + basis and with some clarifications. FERC again stressed that the=20 + breakpoint "is not the most important of our mitigation measures. In = +fact,=20 + it is simply a monitoring safety net for what will be vastly reduced = +spot=20 + market purchases" that will serve less than 5 percent of load. And "b= +y=20 + design and definition, spot markets must be allowed to reflect the pr= +ice=20 + swings which capture their temporal nature. . . . Those who remain in= + the=20 + spot market for buying their residual load or selling their residual= +=20 + supply should be there in full recognition of the effects on price of= + last=20 + minute sales and purchases." + Regarding the level of the breakpoint, FERC acknowledged that the = +cost=20 + of running a combined-cycle gas facility given current gas and NOx pr= +ices=20 + (which are running 20 times more than what they were a year ago) is= +=20 + between $400 - $500/MWh. Nevertheless, the Commission refused to rais= +e the=20 + breakpoint level because of its goal to move load and supply to=20 + longer-term forward markets. "We are firmly committed to monitoring p= +rices=20 + and to raise the breakpoint only if the goals of generation adequacy = +and=20 + service reliability are threatened generally," the order reasoned.=20 + Similarly, the Commission refused to index the breakpoint to generati= +on=20 + input prices because it would lead to a constantly changing breakpoin= +t for=20 + what will be a small part of the overall market. + In determining whether prices above $150/MWh are justified, the=20 + Commission will consider factors such as (1) the outage rates of the= +=20 + seller's resources, (2) the failure of the seller to bid unsold MWs i= +nto=20 + the ISO's real-time market, and (3) variations in bidding patterns fo= +r the=20 + same or similar resources. While the presence of one or more of these= +=20 + factors will not necessarily result in price mitigation, FERC said "i= +t=20 + will serve as a clear signal for careful review." On the other hand, = +FERC=20 + "fully realize[s] that sellers may bid above their marginal cost in t= +imes=20 + of scarcity." + In a change from the Nov. 1 order, FERC eliminated a requirement t= +hat=20 + generators justify as-bid prices against opportunity costs because of= + the=20 + "unworkable complexities that the opportunity cost concept introduces= + in=20 + the ISO real-time imbalance market." + FERC will also now end its review of transactions above the breakp= +oint=20 + within 60 days after the transaction report is filed, and if the sell= +er is=20 + not notified within those 60 days, all refund liability for that=20 + transaction will end. If notification is received, refund liability w= +ill=20 + continue until the review is terminated and a final Commission order = +or=20 + staff letter is issued. FERC said this 60-day limit will provide both= +=20 + flexibility and finality. + Since the breakpoint mechanism will now end at the end of April, F= +ERC=20 + directed its staff to hold a technical conference in January to explo= +re a=20 + more comprehensive approach to market mitigation, including appropria= +te=20 + thresholds and screens and specific mitigation measures if those=20 + thresholds and screens are breached. The Commission wants the permane= +nt=20 + mechanism to be in place by May 1, 2001. + As far as requests to implement a hard or load-differentiated pric= +e=20 + cap, FERC acknowledged that they could lower prices in the very near = +term.=20 + However, it said the devices are arbitrary and have unpredictable=20 + consequences. The order said, "In a practical sense, they are a form = +of=20 + cost-based regulation and lowering prices in the spot market will aga= +in=20 + create biases between markets and, further, not provide sufficient=20 + incentives for building the new generation resources that are critica= +l for=20 + California. Every time we intervene in one market, we affect other ma= +rkets=20 + and prevent, rather than support, the development of efficient,=20 + competitive bulk power markets." + Similarly, the Commission said the Dept. of Energy's suggestion th= +at it=20 + force generators to sell into the CA-ISO's market and bid in at their= +=20 + running costs "is simply another form of cost-based regulation which= +=20 + attempts to arrive at the cost that a properly functioning market wou= +ld=20 + produce. However, any attempt to simulate how this market would work = +under=20 + perfect conditions, such as the absence of scarcity, will not induce= +=20 + supply entry. Moreover, it can create pricing distortions in the forw= +ard=20 + markets at a time when it is critical that forward markets develop an= +d=20 + mature. . . . We cannot afford to stymie entry and we therefore chose= + to=20 + err on the side of relying on the market to set the scarcity price su= +bject=20 + to our monitoring rather than depressing prices and running the risk = +that=20 + much needed supply goes elsewhere. We will gain experience with both = +the=20 + interim and permanent monitoring programs and will make needed change= +s as=20 + we go forward." + Market Power Issues -- FERC refused to budge from its earlier find= +ing=20 + that the record does not show any specific instances of the exercise = +of=20 + market power, despite information and pleadings provided after Nov. 1= +.=20 + This is because the Commission believes that the convergence of a var= +iety=20 + of factors is causing California's market troubles, including (1)=20 + significant overreliance on spot markets, (2) large increases in load= +=20 + combined with lack of new facilities and reduced availability of supp= +ly=20 + from out of state, (3) chronic underscheduling, and (4) lack of deman= +d=20 + responsiveness to price. + "There is not sufficient evidence on this record to find that=20 + particular sellers have exercised market power or that they have viol= +ated=20 + Commission-approved market rules," FERC asserted. "Moreover, going=20 + forward, we have no assurance that rates will not be excessive relati= +ve to=20 + the benchmarks of producer costs or competitive market prices, due to= + the=20 + circumstances listed above. Therefore, we reaffirm our findings that= +=20 + unjust and unreasonable rates were charged and could continue to be= +=20 + charged unless remedies are implemented." + Other Issues --"Because of the complex jurisdictional issues invol= +ved=20 + and the benefits of avoiding litigation," FERC will consult with stat= +e=20 + officials on how to select a non-stakeholder board for the CA-ISO. An= +d=20 + since the PX's rate tariff will be terminated on May 1, 2001, FERC wi= +ll=20 + not impose the Nov. 1 order's proposal to replace the PX's board as w= +ell. + Finally, among other things, the Commission (1) said the IOUs as w= +ell=20 + as the CA-ISO must file interconnection procedures no later than sixt= +y 60=20 + days after a new CA-ISO board is seated; (2) refused to prescribe=20 + particular long-term market reforms at this time, but directed its st= +aff=20 + to convene a technical conference to explore the best long-term measu= +res=20 + to address California's wholesale markets; (3) modified the deadline = +by=20 + which the CA-ISO must file a new congestion management redesign propo= +sal=20 + to no later than January 31, 2001 (rather than 60 days after a new bo= +ard=20 + is seated); and (4) refused to adopt a region-wide price cap at this = +time. + The Commission also rejected the following various proposals and= +=20 + complaints related to California's market problems: (1) the Californi= +a=20 + Oversight Board's complaint (EL00-104), (2) the California Municipal= +=20 + Utility Assn.'s complaint (EL01-1), (3) the California for Renewable= +=20 + Energy, Inc.'s complaint (EL01-2), (4) the CA-ISO's Offer of Settleme= +nt=20 + (Docket No. EL00-95-003, et al., (5) Puget Sound Energy, Inc.'s compl= +aint=20 + (EL01-10), and (6) Reliant Energy Power Generation, Inc., et al.'s=20 + complaint (EL00-97). + Reaction + Reaction to the FERC order by California state officials was large= +ly=20 + negative. California Gov. Gray Davis scorched FERC for abdicating its= +=20 + responsibility to ensure just and reasonable rates by refusing to=20 + institute a regional price cap, and instead ensuring "unconscionable= +=20 + profits for the pirate generators and power brokers who are gouging= +=20 + California consumers and businesses." + "This is an inexplicable decision by armchair Washington bureaucra= +ts=20 + fixated on economic ideology that has no practical application to the= +=20 + dysfunctional energy market in California and the West," Davis contin= +ued.=20 + "Instead of acting in the best interests of consumers and businesses,= + the=20 + FERC Commissioners have acted as pawns of generators and power seller= +s=20 + whose only interest is to plunder our economy." + Davis promptly called the California legislature into special sess= +ion=20 + to address electricity related issues, and asked the state attorney= +=20 + general to expand an investigation to include civil and criminal=20 + violations that may have occurred in relation to operations practices= + of=20 + the generators and the pricing of natural gas. "The public health and= +=20 + safety of California's citizens and the economy of the state cannot b= +e=20 + subject to the blackmail of a few greedy privateers working in concer= +t=20 + with a handful of Washington bureaucrats," Davis concluded. + California Sen. Dianne Feinstein (D) also slammed the order. "It i= +s=20 + clear to me that FERC is either too timid, too weak or too uninspired= + to=20 + do what is necessary in this crisis, which is to regulate the prices = +until=20 + a stable market can be developed. If the regulatory authority is unwi= +lling=20 + to do this, with the evidence of price gouging that exists, there is = +no=20 + hope for a deregulated system, in my view," said Feinstein. + Jerry Jordan, executive director of the California Municipal Utili= +ty=20 + Assn. (CMUA), was also highly critical. Jordan said, "Apparently join= +ing=20 + the cult of the mystical competitive electricity market, the FERC has= +=20 + completely abrogated its statutory obligation to protect electricity= +=20 + consumers and assure just and reasonable rates. In its order . . . FE= +RC=20 + only assured continued enrichment of generating companies at the expe= +nse=20 + of electricity consumers." + CMUA had urged FERC to reestablish cost-based wholesale rate regul= +ation=20 + as the only feasible means of protecting consumers until such time as= + an=20 + adequate supply of electricity is available. + PG&E and SoCal Edison also said they were disappointed in the= +=20 + order. "The remedies outlined in the order do not go nearly far enoug= +h to=20 + provide a solution that ensures reliability of the state's electricit= +y=20 + supply and, equally important, provide relief from future price gougi= +ng,"=20 + said a PG&E corporate statement. + SoCal Edison chief Stephen Frank added that FERC "worsened the=20 + situation" by replacing the $250/MWh hard cap with the $150/MWh=20 + breakpoint. "We've had FERC's `soft cap' in place for this past week,= + and=20 + prices skyrocketed," he added. "FERC's failure to carry out its=20 + responsibilities under the Federal Power Act to ensure just and reaso= +nable=20 + wholesale prices poses a serious threat to the California economy." + |
| FERC takes action to repair Calif. market, but few=20
+ pleased 12/25/2000 Megawatt Daily (c) Copyright 20= +00=20 + Pasha Publications, Inc. All Rights Reserved.=20 + + FERC issued a hotly anticipated order late on Dec. 15, offering=20 + remedies to California's wholesale markets that were largely similar = +to=20 + the draft order proposed on Nov. 1. + The order was aggressive in more clearly defining several areas th= +at=20 + had been left vague in the initial battery of market fixes, but omitt= +ed=20 + any reference to the region-wide price caps called for by market=20 + participants and officials in California. + The order lifted the buy/sell requirement that existed for Califor= +nia's=20 + investor-owned utilities (IOUs) and set a benchmark rate against whic= +h to=20 + evaluate long-term, bilateral contracts. + FERC also mandated a $150/MWh "break point" for sales in the spot= +=20 + market but limited its duration to only four months. The aim of the= +=20 + order's provisions, the commissioners said, was to mitigate price=20 + pressures and shift emphasis from spot markets to forward contracts. + One of the major price mitigation measures was FERC's elimination = +of=20 + the buy/sell requirement. This provision has two main effects. + The IOUs will no longer have to sell into the California Power Exc= +hange=20 + (Cal-PX) market all of the power generated by the plants they retaine= +d=20 + after the implementation of the state's 1996 restructuring law, A.B. = +1890.=20 + Now the IOUs will be able to use the 25,000 MW from those plants to s= +erve=20 + their firm customers. + This will allow the utilities to serve about 60% of the state's na= +tive=20 + load during peak hours and about 90% during non-peak periods. + Additionally, the IOUs will no longer have to purchase their power= +=20 + through the Cal-PX or California Independent System Operator (Cal-ISO= +)=20 + markets. This frees the utilities to pursue bilateral contracts with= +=20 + marketers and other generators. + FERC aimed to promote more forward contracting of power through=20 + increased use of bilateral contracts. To that end, FERC established a= +=20 + $74/MWh benchmark price for five-year contracts. The commission plans= + to=20 + use the benchmark to judge long-term contracts and hopes it will ease= +=20 + concerns on the part of the IOUs that California regulators may=20 + second-guess power purchases after the fact. + FERC also narrowed the scope of its price cap proposal, establishi= +ng a=20 + $150/MWh "break point" to go into effect from Jan. 1 through the end = +of=20 + April. As in the commission's Nov. 1 "soft cap" proposal, the new "br= +eak=20 + point" requires generators or marketers bidding in power at more than= +=20 + $150/MWh to provide documentation of the costs necessitating that hig= +her=20 + price. + Under the "break point" provision, FERC retains the authority to r= +efund=20 + to buyers the costs of any deals above the limit that it deems=20 + unwarranted. However, to limit market uncertainty, FERC curtailed the= +=20 + duration of the refund review period for wholesale deals. According t= +o the=20 + order, the commission's review capacity expires 60 days after the clo= +se of=20 + the deal unless FERC notifies the parties involved. + The new cap is valid for an interim period during which FERC staff= + will=20 + hold a technical conference to "develop a comprehensive and systemati= +c=20 + monitoring and mitigation program" that will be put in place indefini= +tely. + The order instructs staff to complete work on the market monitorin= +g=20 + system by March 1 so that it can be implemented by May 1. + FERC also ordered California utilities to schedule 95% of their lo= +ad=20 + ahead of real-time, lessening reliance on spot markets. + As in the proposed order, FERC mandates that the Cal-ISO's stakeho= +lder=20 + board be disbanded and replaced by an independent board. Commissioner= +s=20 + made provisions for a later order to determine how the independent bo= +ard=20 + will be chosen, but indicated that California's politicians will be= +=20 + involved in the process ultimately developed. + The order will surely, as Commissioner Curt Hebert said, disappoin= +t=20 + some of those who came to FERC asking for relief. FERC avoided addres= +sing=20 + the issue of retroactive refunds in the order. + Still, the commissioners, who voted unanimously in favor of the or= +der,=20 + were optimistic that, if made truly competitive, liberalized markets = +can=20 + work. The crux of the order, the commissioners said, was its price=20 + mitigation measures aimed at limiting volatility in California's whol= +esale=20 + markets and ultimately protecting consumers from wide price swings an= +d=20 + mounting bills. + Commissioners pointed to the IOUs' increased independence in buyin= +g=20 + power and their control over their retained generation as factors tha= +t=20 + will help hold prices down over the long term. Commenting on the orde= +r,=20 + they said that they felt it placed the onus strongly on entities with= +in=20 + California to solve the problems besetting the state. + Reaction to the FERC order, especially by parties in California an= +d the=20 + West, was largely negative. + FERC "took a very bold and brave step" by encouraging long-term=20 + contracts and reducing reliance on spot markets, eliminating the buy/= +sell=20 + requirement for IOUs in the state and setting a "soft" cap, or "break= +=20 + point," of $150/MWh for spot market prices, said Western Power Tradin= +g=20 + Forum Executive Director Gary Ackerman. + "[FERC] took a fairly good order and improved it," he said, referr= +ing=20 + to FERC's Nov. 1 draft order. But, he added, "As Commissioner Hebert = +said,=20 + 'There's something in this order to disappoint everyone.'" + "FERC is being very generous toward the state of California by giv= +ing=20 + them an opportunity to work with the FERC" to resolve industry=20 + restructuring problems, he said. "They're trying to do the right thin= +g,"=20 + he said of FERC, which, he added, is more than could be said for=20 + California regulators and officials. + Reactions of California officials and regulators to the electricit= +y=20 + crisis have been "childish," he said. "They don't understand what's g= +oing=20 + on. California has acted in the most petulant way possible," Ackerman= +=20 + said. "FERC is really holding out the olive branch." + "We think it's a good first step" to bring "stability and more=20 + predictability to the market," Duke Energy's Tom Williams said. + "We like the softness of the cap," Williams said. Production costs= + for=20 + Duke's generators, he said, have averaged about $550/MWh, due in part= + to=20 + higher gas prices. Several of the Duke units have been down because o= +f the=20 + hard cap, he said. Under the order, he said, Duke would be able to=20 + generate the more expensive power as long as the company provides an= +=20 + explanation for the higher costs. + The order's emphasis on forward contracts is a "very good idea," h= +e=20 + said, adding that Duke also is pleased that the order seeks to preven= +t=20 + state regulators from scrutinizing bilateral contracts. Whether or no= +t the=20 + benchmark rate is reasonable, however, "is dependent on the price of = +gas=20 + and the term of the contract," he said. + Predictably, not everyone was pleased. "FERC's action on Friday di= +dn't=20 + address the real problem," Enron's Karen Denne said, "which is that t= +he=20 + California market needs an increase in supply or a decrease in demand= +." + While stressing the forwards market is part of the solution, regul= +ation=20 + of the forwards market is not appropriate, she said in reference to t= +he=20 + benchmark price for long-term contracts. + For every proposed solution to California's energy problems, she s= +aid,=20 + the question must be, "Does it increase supply or decrease demand?" + "Solutions that encourage long-term contracts and minimize depende= +nce=20 + on spot markets will help immeasurably in bringing California consume= +rs=20 + stable prices and a clean, reliable supply of electricity," Reliant E= +nergy=20 + Senior Vice President John Stout said. + "[Friday's] decision . . . sends a very clear signal to all market= +=20 + participants - generators, electric utilities, consumer leaders, stat= +e=20 + elected officials and the regulators they appoint - that it is now ti= +me to=20 + come together to fashion solutions that solve the problem," Stout sai= +d.=20 + "The FERC's commitment to and understanding of the consumer benefits = +of=20 + competition will go a long way toward stabilizing the volatile nature= + of=20 + the California electricity market." + "We're very pleased that FERC" is trying "to reaffirm that they wa= +nt to=20 + make these markets work and that wholesale competition is needed,"=20 + Electric Power Supply Association President Lynne Church said. + Generators have made efforts to remedy the supply shortage in the= +=20 + state, she said, citing Duke's public offer to supply 3,300 MW for fi= +ve=20 + years to San Diego Gas & Electric at a rate of about $60/MWh. Oth= +er=20 + generators, Church said, have made private offers. + The state's two largest utilities, Southern California Edison (SoC= +alEd)=20 + and Pacific Gas & Electric (PG&E), repeatedly said they were= +=20 + disappointed in the order; PG&E used the word three times in a=20 + statement. + "The remedies outlined in the order do not go nearly far enough to= +=20 + provide a solution that ensures reliability of the state's electric s= +upply=20 + and, equally importantly, provides relief from future price gouging,"= +=20 + PG&E's corporate statement said. + SoCalEd Chairman, President and CEO Stephen Frank said FERC "worse= +ned=20 + the situation" by lifting the $250/MWh price cap on real-time market= +=20 + prices in favor of a $150 cap that can be exceeded if justified. + Puget Sound Energy first proposed to FERC a region-wide price cap,= +=20 + explaining the relationship between California's power market and the= + rest=20 + of the West. Its motion was joined by several other utilities in the= +=20 + Pacific Northwest and was endorsed by local, state and federal=20 +legislators. + "We had really hoped some kind of region-wide price cap would have= + been=20 + put in place," Puget Sound's Grant Ringel said. + California Gov. Gray Davis said FERC, through its order, "abdicate= +d its=20 + responsibility to the people in the West." + In extremely harsh comments, Davis said, "This is an inexplicable= +=20 + decision by armchair Washington bureaucrats fixated on economic ideol= +ogy=20 + that has no practical application to the dysfunctional energy market = +in=20 + California and the West. Instead of acting in the best interests of= +=20 + consumers and businesses, the FERC commissioners have acted as pawns = +of=20 + generators and power sellers whose only interest is to plunder our=20 + economy." + Sen. Dianne Feinstein called the order "unacceptable" and said, "I= +t is=20 + clear to me that FERC is either too timid, too weak or too uninspired= + to=20 + do what is necessary in this crisis, which is to regulate the prices = +until=20 + a stable market can be developed. If the regulatory authority is unwi= +lling=20 + to do this, with the evidence of price gouging that exists, there is = +no=20 + hope for a deregulated system, in my view." + Washington Gov. Gary Locke said, "FERC's order is at best incomple= +te,=20 + at worst ineffective. While it falls short of providing California=20 + consumers immediate relief they need from soaring energy prices, it= +=20 + ignores altogether that consumers and businesses in the Pacific North= +west=20 + are also being harmed." + Oregon Gov. John Kitzhaber asked for a regional energy summit to= +=20 + address the issues. "Events are overtaking us, and we run the risk of= +=20 + becoming victims of a set of circumstances which are rapidly moving b= +eyond=20 + our control," he said. + FERC's long-awaited order concerning the California wholesale mark= +et=20 + left consumer advocate groups "very disappointed" with the outcome an= +d=20 + claiming that nothing had been done to reduce the record-level prices= + that=20 + consumers are paying for power. + Specifically, The Utility Reform Network (TURN) targeted FERC's fa= +ilure=20 + to implement region-wide price caps asked for by many marketers. "FER= +C has=20 + done nothing to help us," TURN's Mindy Spatt said. + "It's easy to sit in Washington and say 'Have faith in [the Califo= +rnia]=20 + market.' . . . We don't have faith in the market," she said, adding t= +hat=20 + consumers are the ones stuck paying unprecedented bills for power. + The Foundation for Taxpayers & Consumer Rights also criticized= + the=20 + order, claiming that FERC refused to take control of the situation an= +d=20 + left consumers with "outrageous" prices. + "Federal regulators have blatantly ignored the failure of electric= +ity=20 + deregulation, and they continue to blindly appeal to the unregulated= +=20 + marketplace to control itself," the foundation's Doug Heller said. + The group sharply criticized FERC's failure to order refunds to=20 + consumers in San Diego, the hardest hit by deregulation, Heller said.= + "San=20 + Diegans were the lab rats of this miserable deregulation experiment, = +yet=20 + FERC has refused to punish the power company culprits and relieve the= +=20 + innocent victims, the people and businesses of San Diego," he added. + The group also denounced FERC's proposed long-term contracts, or= +=20 + bilateral contracts, stating that these contracts "will only lock=20 + California consumers into whatever private deals utilities arrange wi= +th=20 + the private power generators." + The foundation said that the Cal-ISO structure is "insufficient to= +=20 + protect consumers from supply manipulation and price gouging." The gr= +oup=20 + suggested that the state's transmission system should be a publicly o= +wned=20 + and managed system. + |
| Off-peak retreats $10 for Christmas Day 12/22/2000=20 + Megawatt Daily (c) Copyright 2000 Pasha Publications, Inc. Al= +l=20 + Rights Reserved.=20 + + Traders started work yesterday facing concurrent Stage 1 and 2=20 + emergencies declared at 7:30 a.m. PST for northern California because= + of=20 + bottlenecks on Path 15. + The California Independent System Operator (Cal-ISO) said power fl= +owing=20 + from the Northwest into the state was down to a trickle. It invoked f= +or a=20 + second day a federal order that required suppliers to send power to= +=20 + California. + The Cal-ISO sought supplemental bids for 3,000 MW. It has declared= +=20 + power emergencies in 14 of the last 15 days. + Meanwhile, prices fell about $10 from a day earlier in deals done = +at=20 + off-peak rates for an around-the-clock, two-day package for delivery= +=20 + Sunday and Christmas Day. + Off-peak deals averaged in the $380s at COB and Mid-Columbia, the = +$330s=20 + at NP15, below $215 at SP15 and sold mainly in the $180s at Palo Verd= +e. + Volume was light and many traders said they were flat. + "It's quiet out there because with market prices so high, nobody c= +an=20 + sell much power to anyone," a trader said. + Because of the Christmas holiday weekend, deals for dailies for=20 + delivery today through Saturday were done last Wednesday. Today, trad= +ers=20 + will preschedule dailies for delivery next Tuesday. All prices will b= +e=20 + reported in the market indexes published for the respective delivery= +=20 +dates. + Today's dailies, traded on Wednesday, mainly sold near $473 at=20 + Mid-Columbia and COB, $427 at NP15 and $278-$289 at SP15 and Palo Ver= +de.=20 + Off-peak averaged from $400 at COB to $225.50 at SP15. + Because of low reservoir supplies, the Bonneville Power Administra= +tion=20 + has no surplus power to sell until at least Sunday. That could contin= +ue=20 + through the holidays. + The California Power Exchange price for peak today was $294.81,=20 + compared to $349.18 a day earlier. Off-peak was $276.89, down from $3= +13.06=20 + the previous day. The 24-hour weighted average was $289.76, down from= +=20 + $338.83. BM/NM/KW + |
| SoCal 1,070-MW San Onofre3 To Begin 45-Day Outage Jan=20
+ 2 12/28/2000 Dow Jones Energy Service (Copyright (= +c)=20 + 2000, Dow Jones & Company, Inc.)=20 + + NEW YORK -(Dow Jones)- Southern California Edison Co.'s=20 + 1,070-megawatt San Onofre nuclear unit 3 is still scheduled to begin = +a=20 + 45-day refueling and maintenance outage Jan. 2, a source familiar wit= +h the=20 + unit's operations said Thursday.=20 + The unit was operating at 85% power Thursday and coasting down,=20 + according to the Nuclear Regulatory Commission's plant status report. + San Onofre unit 2, also rated at 1,070 megawatts, was operating at= + 100%=20 + power Thursday, the NRC said.=20 + The two San Onofre units are on a 24-month refueling cycle.=20 + Southern California Edison, an Edison International (EIX) u= +nit,=20 + operates the two-unit plant and owns 75% of it. San Diego Electric= +=20 + & Gas owns 20% and the cities of Anaheim and Riverside, Calif= +. own=20 + 5%.=20 + The San Onofre plant is in southern California . -By Kristen McN= +amara, Dow Jones Newswires; 201-938-4377; +kristen.mcnamara@dowjones.com+ |
| USA: Court likely to rule on FERC suit in 2=20
+ weeks-lawyer. 12/28/2000 Reuters English News Service= +=20 + (C) Reuters Limited 2000.=20 + + LOS ANGELES, Dec 28 (Reuters) - A court ruling on Southern Califor= +nia=20 + Edison's lawsuit demanding a return to cost-based rates in the state'= +s=20 + troubled wholesale electricity market should come in about two weeks,= + a=20 + leading lawyer specializing in power issues said on Thursday. + Clark Downs, a partner in international law firm Jones, Day, Reavi= +s and=20 + Pogue, said the District of Columbia Circuit Court of Appeals probabl= +y=20 + won't directly impose cost-based rates in California. At most, he sai= +d,=20 + the court would remand the suit against the Federal Energy Regulatory= +=20 + Commission to the FERC itself for hearings. + Southern California Edison, a unit of Edison International, has as= +ked=20 + for a "writ of mandamus" against the FERC, and the court has ordered= +=20 + regulators to respond by Jan. 2. + Such action can be sought when it is alleged that a government off= +icial=20 + has a duty to act but has not carried out that duty. + Southern California Edison alleges that FERC has found that rates = +are=20 + not "just and reasonable" as required by U.S. law, but has refused to= + take=20 + the action needed to return prices to reasonable levels. + Downs said request for the writ was an "extraordinary" step, since= + the=20 + usual way to control administrative action is through appellate revie= +w. + "It (appellate review) is a time-consuming process," he said, "and= + that=20 + is the reason that they have taken this action." + Skyrocketing wholesale power prices in California have brought Sou= +thern=20 + California Edison to the brink of bankruptcy. The company currently c= +annot=20 + pass on those price hikes to its customers under the terms of the sta= +te's=20 + power deregulation legislation. + The legislation, which was passed in 1996 and enacted in 1998, led= + to=20 + market-based rates in the wholesale electricity market rather than th= +e=20 + traditional cost-based formula. + Downs said the "just and reasonable" principle is designed to ensu= +re=20 + that excessive profits are not taken from businesses that are necessa= +ry to=20 + the public. He noted that electricity has always been seen as a publi= +c=20 + necessity. + FERC's defense will be partly procedural, producing case law showi= +ng it=20 + has discretion ordering its own affairs. It will say it is exercising= + its=20 + discretion reasonably and that a writ of mandamus is inappropriate, D= +owns=20 + said. + Federal regulators will also claim that the development of competi= +tive=20 + markets serves the public interest, and a return to cost-based ratema= +king=20 + would be a substantial impediment to establishing them, he added. + "They (the court) may deny SCE's request or it may remand the matt= +er to=20 + FERC for hearings," Downs said. "In no event would the court decide o= +n its=20 + own to impose cost-based rates." + A key issue if the court does remand the issue to FERC will be wha= +t=20 + guidance it provides. It may ask FERC to take action or to simply exp= +lain=20 + why it has not taken action. The case could then return to the courts= +=20 + after FERC has issued a response. + |
| PG&E Warns May Cut Power Payments Unless Prices=20
+ Capped By Jason Leopold 12/28/2000 Dow Jones Energy= +=20 + Service (Copyright (c) 2000, Dow Jones & Company, Inc.)=20 + + (This story was originally published Wednesday)=20 + SAN FRANCISCO -(Dow Jones)- PG&E Corp. (PCG) unit Pacific Gas = +&=20 + Electric may stop paying in full for power it bought in the auction r= +un by=20 + the California Power Exchange unless federal regulators agree to cap= +=20 + wholesale power prices at rates reflecting generators' costs, a=20 + high-ranking executive close to the issue said Wednesday. + The utility, which faces mounting losses from having to buy wholes= +ale=20 + power at prices far higher than it can charge its customers, will onl= +y pay=20 + a rate equal to what it deems just and reasonable, the PG&E execu= +tive=20 + said.=20 + "We are nearing the end of our rope, and we don't think that we sh= +ould=20 + be forced to pay outrageous rates," the executive said. "If FERC igno= +res=20 + or rejects our bid to fix these rates, we will begin making partial= +=20 + payments to the Power Exchange."=20 + Pacific Gas & Electric said Wednesday that it is preparing to = +file=20 + a suit to require the Federal Energy Regulatory Commission to impose = +a=20 + cost-based cap on power sold in California's markets.=20 + Edison International (EIX) unit Southern California Edison filed a= +=20 + similar suit in the U.S. Court of Appeals for the District of Columbi= +a=20 + circuit Tuesday, saying FERC had abdicated its responsibility by fail= +ing=20 + to correct what the commission itself said were unjust and unreasonab= +le=20 + wholesale power costs.=20 + PG&E spokesman Ron Low said Wednesday the utility is "looking = +at a=20 + number of cash-conservation measures," including limiting payments to= + the=20 + Power Exchange.=20 + "We are reviewing all options now," Low said. "Partial payments ar= +e one=20 + of the many options we're looking at." =20 + PG&E's Next Bill Due Jan. 15, CalPX Says=20 +California's utilities buy much of their electricity=20 + through the Power Exchange, which was established under the state's= +=20 + deregulation law four years ago to run the market for power to be=20 + delivered the next day.=20 + The Power Exchange's billing cycle is every 45 days. A spokesman a= +t the=20 + exchange said PG&E's next bill - worth several hundreds of millio= +ns of=20 + dollars - comes due Jan. 15.=20 + PG&E's next bill at the California Independent System Operator= +,=20 + which runs the state's real-time wholesale market, also amounts to se= +veral=20 + hundreds of millions of dollars and comes due Jan. 3, the ISO said.= +=20 + The PG&E executive said the utility was also considering layof= +fs=20 + and major cuts in spending as part of its cash-conservation plan, whi= +ch is=20 + expected to be implemented soon.=20 + PG&E expects its power-purchase losses to reach $6 billion by = +the=20 + end of December, people at the company said. About one-third of those= +=20 + losses are offset by profits from generators the utility still owns. = +Those=20 + profits, now kept separate from other revenues, are expected to be us= +ed to=20 + pay down PG&E's debt.=20 + State regulators are holding hearings on the issue this week, with= + an=20 + eye to raising the utilities' retail electricity rates. The hearings= +=20 + before the Public Utilities Commission pit consumers and their advoca= +tes,=20 + who say the utilities are overstating their financial woes, against t= +he=20 + utilities and their creditors, who say the losses threaten the utilit= +ies'=20 + continued operations.=20 + PG&E has asked for a 26% increase in its rate, now frozen at $= +54 a=20 + megawatt-hour. Wholesale power for delivery in the West Thursday and= +=20 + Friday sold for $160-265 a megawatt-hour Wednesday.=20 + The size of any rate increase will be determined by an independent= +=20 + audit of the companies' financial status, which is to be concluded ne= +xt=20 + week. The PUC is expected to take up the issue of a rate increase at = +its=20 + Jan. 4 meeting. =20 + PG&E Says It's Out Of Credit, Nearly Out Of Cash=20 +Debt-rating agencies are watching the PUC's moves closely,= +=20 + saying the utilities' debt will likely be downgraded to speculative, = +or=20 + junk-bond, status unless rates are raised and the utilities are allow= +ed to=20 + recoup their losses.=20 + The utilities are already finding the capital markets closed to th= +eir=20 + requests for financing.=20 + "We are out of credit, and we are close to being out of cash," PG&= +amp;E=20 + General Counsel Roger Peters told the commission, in remarks reported= + by=20 + The Associated Press. "People will not lend us money to buy power."= +=20 + Southern California Edison said Tuesday in a filing with the Secur= +ities=20 + and Exchange Commission that it has been unable to secure a $1 billio= +n=20 + syndicated revolving credit facility and has been unable to market=20 + commercial paper or other short-term obligations needed to finance it= +s=20 + operations.=20 + The utilities' deteriorating creditworthiness has left some genera= +tors=20 + reluctant to supply power to California without guarantees they'll be= +=20 + paid. The U.S. Department of Energy on Wednesday extended an emergenc= +y=20 + order requiring power suppliers in the West to sell uncommitted=20 + electricity to California on demand until Jan. 5.=20 + Standard & Poor's said last week that generators selling power= + in=20 + California face "extremely serious counterparty credit concerns" as a= +=20 + result of the utilities' liquidity crunch.=20 + FERC issued a final order to resolve California's power-market tro= +ubles=20 + on Dec. 15. The order set a "soft" cap of $150 a megawatt-hour on pow= +er=20 + prices in the state and called for a number of changes to the structu= +re of=20 + the state's power markets.=20 + But even though FERC concluded that power prices in California had= +=20 + risen to unjust and unreasonable levels, it declined to order generat= +ors=20 + to pay the refunds sought by the utilities and state officials, sayin= +g it=20 + didn't have the authority to do so. FERC also declined to put a hard = +cap=20 + on prices. The soft cap can be exceeded by suppliers who can justify = +their=20 + requests for higher rates.=20 + Southern California Edison's suit aims to force FERC to take a har= +der=20 + line by setting cost-based caps on power prices.=20 + "Much like of 2000, California's energy crisis will play itself ou= +t in=20 + the courts," said Gil Alexander, spokesman for Southern California Ed= +ison.=20 + + -By Jason Leopold, Dow Jones Newswires; 310-666-9986;=20 + jason.leopold@dowjones.com + |
| USA: California power firm seeks court ruling to end=20
+ crisis. By Nigel Hunt 12/28/2000 Reuters English Ne= +ws=20 + Service (C) Reuters Limited 2000.=20 + + LOS ANGELES, Dec 27 (Reuters) - Southern California Edison asked a= +=20 + court on Wednesday to force federal energy regulators to return to pr= +ice=20 + controls that would end skyrocketing wholesale energy prices - costs = +that=20 + have forced California's investor-owned utilities to the brink of=20 + bankruptcy. + Faced with having to pay huge wholesale power prices without being= + able=20 + to pass the cost on to consumers, Southern California Edison has also= + been=20 + shut out of the market for bank loans and short-term debt. + California Edison attorney Rick Roberts said the clerk of the Cour= +t of=20 + Appeals in Washington, D.C. has ordered the Federal Energy Regulatory= +=20 + Commission (FERC) to file a response by January 2 to its federal cour= +t=20 + suit. + Wholesale power prices have skyrocketed in California this year am= +id=20 + allegations that a chronic shortage of electricity has led to "price= +=20 + gouging" by power producers. "We are asking the court to order FERC t= +o put=20 + in place just and reasonable cost based ratemaking," Roberts said. + Another California utility faced with similar problems, Pacific Ga= +s=20 + & Electric, said it is preparing a similar suit. Federal regulato= +rs=20 + have refused to order refunds from power generators despite finding t= +hat=20 + prices were not "just and reasonable" as required by U.S. law. FERC= +=20 + currently allows wholesale power prices to be set in California throu= +gh a=20 + market-based system. + California officials, including Gov. Gray Davis after a meeting wi= +th=20 + President Clinton at the White House, also criticized FERC on Wednesd= +ay=20 + for not capping electricity prices in California. + U.S. Energy Secretary Bill Richardson extended for the second time= + in a=20 + month a rarely used order mandating electricity generators to sell th= +e=20 + embattled utilities power. + "I remain concerned that the reliability of the grid in California= + may=20 + be endangered," Richardson said in a statement extending an emergency= +=20 + decree, which would have expired on Wednesday, until January 5.=20 + "Electricity generators and marketers continue to express reluctance = +to=20 + sell power in the state," Richardson noted. + Davis had lobbied for the extension, saying FERC was wrong in lift= +ing=20 + wholesale price caps earlier this month. "I think they miscalculated= +=20 + because they thought raising the price would assure California had pl= +enty=20 + of power but four days after they raised the price thirteen generator= +s=20 + withheld any power saying we don't think the utilities have enough mo= +ney=20 + left to pay us," Davis told CNN in an interview. + "Clearly the theory under which the price cap was lifted didn't wo= +rk." + SHUT OUT OF MARKETS + Southern California Edison, a unit of Edison International , said = +in a=20 + regulatory filing it has been unable to syndicate a $1 billion revolv= +ing=20 + credit line and cannot sell commercial paper and other short-term deb= +t=20 + securities. + California utilities have run up billions of dollars in power purc= +hase=20 + costs this year which they have been unable to pass on to customers d= +ue to=20 + a rate freeze. + At the end of November the shortfall stood at $7.7 billion, compri= +sing=20 + $3.2 billion for Southern California Edison and $4.5 billion for Paci= +fic=20 + Gas and Electric, a unit of PG&E Corp . + Davis has accused power generators of charging 800 percent to 900= +=20 + percent above their costs, forcing utilities to pay far more than the= +y can=20 + recover under a retail price freeze imposed under the 1996 legislatio= +n=20 + which deregulated power markets in the state. + On Wednesday, California regulators held the first public hearings= + on=20 + lifting that retail price freeze. Southern California Edison is seeki= +ng a=20 + 30 percent rate hike and Pacific Gas and Electric an initial 26 perce= +nt=20 + rise. + Loretta Lynch, president of the California Public Utilities Commis= +sion=20 + (CPUC), said inaction by federal regulators had contributed to sendin= +g the=20 + California power market spinning out of control. CPUC commissioner Ca= +rl=20 + Wood told the hearings in San Francisco that FERC is telling Californ= +ia=20 + its economy can "go down the toilet." + The hearings are scheduled to continue on Thursday and could be=20 + extended into next week ahead of a January 4 commission meeting that = +will=20 + decide on rate hikes. + CHALLENGE FROM POWER EXCHANGE + A FERC order issued on December 15 aimed at controlling electric p= +rices=20 + in the state also came under fire from the power exchange created by= +=20 + deregulation. + The Pasadena-based California Power Exchange (CalPX) asked federal= +=20 + regulators to reconsider a potentially crippling price cap which it s= +aid=20 + would drive business elsewhere. + FERC imposed a $150 per megawatt hour "soft" price cap for CalPX,= +=20 + effective January 1. The cap does not apply to rival exchanges such a= +s the=20 + Automated Power Exchange. + "If you put an anchor around our neck how are we going to swim? We= + are=20 + not going to swim, we are going to sink. We are just seeking fair=20 + treatment, said CalPX spokesman Jesus Arrendondo. + Many sellers may quit CalPX in a bid to avoid the new price cap,= +=20 + threatening the exchange's viability, industry sources said. + |
| CPUC DEFERS DECISION ON LIFTING RATE FREEZE; IOUS AND CREDIT RAT=
+ING=20
+ AGENCIES ANXIOUSLY AWAIT OUTCOME 12/27/2000 Foster Ele= +ctric=20 + Report Page 5 (c) Copyright 2000, Foster Associates, Inc.=20 + + The California Public Utilities Commission (CPUC) on 12/22/00 defe= +rred=20 + until Jan. 4 a decision on whether to authorize major rate increases = +for=20 + the Pacific Gas & Electric Co. (PG&E) and Southern California= +=20 + Edison Co. (SoCal Edison) to make up for astonishingly high wholesale= +=20 + power costs. + The CPUC decision will be an important one, as some have predicted= + that=20 + PG&E and SoCal Edison could be forced to claim bankruptcy without= + rate=20 + relief. Others, including the CPUC, are not so sure. Thus, the CPUC w= +ill=20 + hold two emergency hearings on Dec. 27 and Dec. 28 to help it determi= +ne if=20 + the utilities are crying "wolf" or are indeed in financial peril. For= +=20 + instance, several consumer groups have suggested that the utilities a= +re=20 + playing a "game of chicken" by threatening to declare bankruptcy if t= +hey=20 + are not allowed to raise rates. In addition, these groups suspect tha= +t=20 + PG&E's and SoCal Edison's holding companies, which also sell powe= +r in=20 + California, are pocketing billions of dollars in profits, more than e= +nough=20 + to cover their subsidiary's losses. + PG&E and SoCal Edison combined have been unable to recover an= +=20 + estimated $8 billion in purchase power costs over the past eight mont= +hs=20 + because of astronomically high wholesale power prices and a state-man= +dated=20 + rate freeze. Under state law, PG&E and SoCal Edison, respectively= +, can=20 + only pass on $55/MWh and $66/MWh of their wholesale purchased power c= +osts=20 + until March 2002, unless the utilities pay off their stranded generat= +ion=20 + costs in advance. The problem is that over the past eight months the= +=20 + utilities paid an average of $250/MWh for power during both on and=20 + off-peak hours. Claiming that they face potential insolvency, the two= +=20 + utilities separately asked the CPUC to approve "rate stabilization pl= +ans"=20 + allowing them to raise their retail rates in exchange for keeping tho= +se=20 + rates stable for several years (see REPORT No.205, pg.10). + In a preliminary Dec. 7 ruling (Docket No. A.99-01-016, et al), CP= +UC=20 + president Loretta Lynch suspended consideration of the utilities' rat= +e=20 + stabilization plans. Calling them premature, she suggested that the C= +PUC=20 + is awaiting completion of market valuation proceedings for the utilit= +ies'=20 + stranded assets and for the end of the utilities' rate freeze periods= +.=20 + Since then, however, FERC has replaced an existing $250/MWh "hard" ca= +p for=20 + California Independent System Operator, Inc. (CA-ISO) purchases with = +a=20 + $150 "trigger" point at the behest of the CA-ISO (see REPORT No.206,= +=20 + pg.1). The CA-ISO made the request after many of the state's power=20 + suppliers were selling power outside the state to take advantage of h= +igher=20 + prices, leaving California short of power. + Claiming that FERC's approval of the CA-ISO's request has resulted= + in a=20 + five-fold increase in wholesale electricity prices and citing the nee= +d to=20 + restore credit rating agencies' confidence, the CPUC on Dec. 22 decid= +ed it=20 + needs to act on the two IOUs' rate stabilization proposals as soon as= +=20 + possible. But first it needs more information. Thus, the commission= +=20 + decided to hire an independent auditor to explore the veracity of the= +=20 + utilities' claims of economic distress. In addition, it will hold pub= +lic=20 + hearings to determine (1) when the rate freeze should end; (2) if the= +=20 + utilities' current cost recovery plans need to be adjusted; (3) what = +rate=20 + adjustments are needed so that the IOUs can continue to provide=20 + reliability service once the rate freeze does end; (4) if the utiliti= +es=20 + should divest their remaining generation facilities; and (5) if the p= +ower=20 + produced by any retained generation assets should serve native load, = +and=20 + if so, at what price. + "The elimination of price caps by FERC on December 8 and the resul= +ting=20 + five-fold increase in electricity prices has expanded the crisis to o= +ne=20 + that involves not only utility solvency but the very liquidity of the= +=20 + system," the CPUC stated in a draft order. "We intend to take expedit= +ed=20 + actions to fulfill our statutory obligations to ensure that the utili= +ties=20 + can provide service at just and reasonable rates. In our view, that= +=20 + mandate means that we must avoid continuing conditions that may jeopa= +rdize=20 + the utilities' creditworthiness and their ability to continue to proc= +ure=20 + energy on behalf of consumers. Therefore, we believe that retail rate= +s in=20 + California must begin to rise." + Driving the CPUC decision were threats by rating agencies to lower= +=20 + PG&E and SCE debt ratings to below investment grade. Given the=20 + impending Jan. 4 decision, Fitch, Moody's Investor Service, and Stand= +ard=20 + and Poor's agreed to hold off on any ratings decisions concerning PG&= +amp;E=20 + and SoCal Edison. Keeping their bond ratings at an investment grade l= +evel=20 + is crucial for the two utilities' financial future since "junk bond"= +=20 + status would put them in default with their bank lenders, leaving the= +m=20 + unable to continue to buy enough power to meet demand. On Dec. 28 the= + two=20 + utilities will receive their next power bills from their suppliers, w= +hich=20 + will run into hundreds of millions of dollars. They must pay these bi= +lls=20 + in full before Jan. 4 or be declared in default by the PX. + According to Fitch, the two utilities have enough cash and existin= +g=20 + credit to get them through the first week of January. If "a suitable = +rate=20 + structure" is approved the CPUC on Jan. 4, Fitch said "the utilities'= +=20 + banks would be more likely to consider additional funding." But even = +then,=20 + Fitch said the utilities' liquidity will remain strained given high= +=20 + regional rates and continuing high wholesale prices. + Given this cash crunch, SoCal Edison's parent, Edison Internationa= +l,=20 + decided on Dec. 22 to suspend its fourth-quarter common stock dividen= +d and=20 + let go 400 contract workers. The utility predicted that these=20 + cost-reduction measures will save approximately $100 million during 2= +001.=20 + At the same time, the cuts "will affect needed investments in=20 + infrastructure, load growth, and system automation." The company has= +=20 + developed a contingency plan to implement more substantial reductions= + "if=20 + further action to remain solvent becomes necessary. The plan will res= +ult=20 + in additional substantial work force reductions and significantly red= +uce=20 + service to customers." + |
| White House Says It's Looking At Mexico Power For
+ Calif 01/26/2001 Dow Jones News Service (Copyright (c) + 2001, Dow Jones & Company, Inc.) + + WASHINGTON -(Dow Jones)- The Bush administration said Friday that it + was reviewing the idea of tapping into Mexican power plants to bring more + electricity to power-starved California . + "That is an area that I know our energy people are looking at," + Fleischer said. + Fleischer didn't specify whether the White House was looking into + building transmission lines to bring power out of Mexico or into building + new plants in Mexico. + President George W. Bush will have a chance to talk about such + proposals when he meets with Mexican President Vicente Fox in February. + Regarding any granting of air-pollution waivers to California to + lift some of the burden from power generators there, Fleischer reiterated + that the White House is reviewing this option. However, he also said that + California must first ask for the waivers and hasn't done so yet. + Instead, the state is easing its own air-pollution standards. + -By Alex Keto, Dow Jones Newswires; 202 862 9256; +alex.keto@dowjones.com + |