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Enron Mail |
Here are my comments
1. I wouldn't agree the caps have hurt liquidity. In fact, in the Northwe= st at least, they have actually increased liquidity. Any decrease in liqui= dity can be attributed primarily to a couple of things (1) uncertainty abou= t the level of the cap and (2) when the day-ahead prices trade above the ca= p (removing marketers as sellers). I would propose the following cap timelines. First of all, I think it's im= portant that FERC realize the "spot" market really is two separate markets,= what we call the "day-ahead" cash markets, and "day-of" real-time markets.= The 24-hour designation doesn't dovetail with the current market timeline= s and is a source of confusion that can adversely affect liquidity and disp= atch of power plants. For example, day-ahead cash typically trades from 6:= 00 am to approximately 7:00 am for next day deliveries. However, on Thursd= ays the WSCC OTC market trades for Friday and Saturday deliveries, and on F= ridays, we trade for Sunday and Monday (all of this can be adjusted for var= ious reasons, but this is the typical schedule). If we held to the 24-hour= spot cap literally, then Tuesday thru Friday the cap would apply to the da= y-ahead market, but would not apply to Saturday and Monday. This obviously= cannot be an intended consequence. I recommend the cap timeline be consis= tent with the day-ahead WSCC OTC trading timelines. In addition, there is some question with respect to what cap applies to the= day-ahead market. What if the forecast calls for much higher temperatures= and it is assured that real-time markets will be trading above the 85% thr= eshold? Assume that stage I, II or even III is a certainty. It seems prud= ent that a higher day-ahead price cap be established (still consistent with= FERC's guidelines). Why? Because you would want units prescheduled to ha= ve high reserve margins going into real-time, rather than scrambling to dis= patch units real-time. It seems like it would be prudent for some independ= ent board to set the day-ahead price cap equal to either the 85% or Stage I= limit prior to trading time. This board would have to have regional repre= sentatives in order to be truly effective. Establishing the cap does not h= ave to be cumbersome or time consuming, in fact, it should be fairly easy. The cap governing real-time transactions is clear. However, what isn't cle= ar is what happens when the new Stage I cap is actually lower than the exis= ting 85% of stage I cap. For example, during the first couple of days in J= uly the real-time cap was operating under the 85% of Stage 1 criteria, appr= oximately $92. The ISO hit a Stage I and Stage II and the price actually f= ell to the $70s. This created uncertainty exactly when it shouldn't happen= . As a result supply was apparently affected in California and the Southwe= st for a few hours across the peak. It seems odd that prices should fall r= eal-time as reserve margins decrease. One could argue this is a good reaso= n why caps should be tied to daily gas prices, but assuming that isn't an o= ption, I propose something like this: The DAY BEFORE (around 2200) the CAI= SO, or preferably an independent body, would determine the real-time non-St= age cap as well as a Stage minimum. While in a stage I, II, or III the hou= rly price would be the HIGHER of the non-stage price cap OR the recalculate= d Stage price. If the Stage I price turned out lower, then the non-stage p= rice would be used for that hour, but the recalculated Stage I cap (and cor= responding 85% price) would apply for the NEXT operating day, and for day-a= head cash trading for the next trade day. This provides information before= the trading period (enhancing liquidity) and eliminates strange price move= ments during real-time. It also fits the FERC price cap paradigm. 2. Marketer prices. I think there is a clear bias against marketers in th= e order. But given the fact it seems deliberately slanted against marketer= s, there are clearly three areas where marketers should be allowed to recov= er costs that are easily demonstrable. First would be losses at a tie into= California. If we sell at the cap and incurr losses, then we can't sell a= t the cap. Second would be the 10% credit premium. Credit issues apply wh= ether you're a marketer or generator. Third would be call options. It see= ms if the market trades above the cap and above the strike in a call option= , that a party should be able to exercise and sell. I'm not sure what the = difference between a peaking plant and a call option is. -----Original Message----- From: =09Comnes, Alan =20 Sent:=09Monday, July 09, 2001 5:31 PM To:=09Yoder, Christian; Hall, Steve C.; Foster, Chris H.; Scholtes, Diana; = Crandall, Sean; Williams III, Bill; Alonso, Tom; Fischer, Mark; Wolfe, Greg Cc:=09Mara, Susan; Perrino, Dave; Belden, Tim Subject:=09Request for clarificatiobn of FERC order All: Please review the attached rough arguments on what the FERC must do to fix = it's current WSCC wide price mitigation mechanism. Enron's (or its trade associations') filing(s) will attack bigger issues su= ch as whether there should be price controls at all and whether the CAISO n= eeds to be audited. However, assuming we are stuck with a cap, I want to p= rovide FERC with comments that at least allows marketers to stay in busines= s. The comments in the attached document are designed to address these "nu= ts and bolts" issues. Formal comments are due next week but I need input f= rom commercial folks like you by WEDNESDAY of this week. Thanks, Alan Comnes << File: FERC Rehearing Draft Portion GAC.doc <<
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