|
|
Enron Mail |
THE FRIDAY BURRITO=20
"If you think nobody cares, try missing a couple of payments."=20 The bigger the missed payment, the more they care.? And how we Californians= =20 care about the potentially biggest missed payment of the Century (Hey, I ca= n=20 say that now and be telling the truth.).? John Yurkanin, COO of the PX was= =20 telling me at the end of our phone conversation yesterday, "You know, Gary,= =20 you might be the only friend I have left anymore."? I informed John that if= =20 my friendship was so prized, then he was in big trouble.?? A situation like= =20 that rates 3.4 TPCs (Totally Pathetic Circumstance).? But, hey, John, stick= =20 with me, don't worry about a thing.? We're going to get through this.=20 Now, let's take an inventory of this week's crises.? There is the electric= =20 shortage crisis.? We entered the Stage 3 Alert zone Thursday afternoon, and= =20 early this morning. There is the natural gas pay-as-you-burn crisis.? Most = of=20 you natural gas sellers have determined that PG&E might not be the secured= =20 buyer they once were.? There is the cash crisis. Our two major utilities ha= ve=20 no liquid funds to pay their energy bills.? Mush all three crises together,= =20 and you get a new word =01( E-gash!? Like our State Motto, Eureka, which me= ans "=20 I have found it", we can exclaim "E-gash.? I'm Screwed."=20 And everyone is starting to feel some of the pain.? The ESPs, or what remai= ns=20 of that class of market participants, were informed by PG&E that the paymen= t=20 of the PX credit for the direct-access customer bills the ESPs are due unde= r=20 consolidated billing are henceforth suspended.? The rate freeze ended last= =20 August, so, the logic goes, PG&E doesn't need to acknowledge the PX credit.= ?=20 That puts a serious breach of contract kink in the ESP/Utility relationship= .?=20 Of course, who is going to write about hundreds of millions of dollars of= =20 short payments when you can write about billions of dollars of short=20 payments.? I mean, who cares about the financial well being of the remainin= g=20 competitors to the UDC's.? Let them fold their tent.? California customers= =20 don't want a choice of energy provider, do they? I don't know.? It's gettin= g=20 too easy to be cynical.=20 Commissioner Carl Wood also handed out a couple of late Christmas gifts.? H= e=20 ruled that QFs under Standard Offer Contracts could at most be paid=20 $67.45/MWH, regardless of the SO formula for energy payment.? The QFs have = to=20 buy winter-time natural gas at market prices, and their production costs ar= e=20 easily in the range of +$200/MWH. What a great idea.? Force 2,500 MW, or so= ,=20 of remaining SO-QF capacity to voluntarily shut down at a time when that=20 capacity is so desperately needed.=20 I know I have been picking on Mr. Wood a lot.? This week we served on the= =20 same FM radio talk show, KQED's Forum.? I hate to admit this, but Carl is= =20 really a nice person.? I don't like disagreeing with people who are basical= ly=20 decent. That's is why I would rather gently tease people like Mike Florio= =20 rather than out-and-out disagree with him.?? I figure that deep inside thes= e=20 misguided souls there is a crossed wire that gives them the wrong answer to= =20 every major policy question.? Carl and I started talking about good places = to=20 get corned beef sandwiches as we were leaving the studio, and he was=20 positively effusive about some delicatessens he has frequented in Orange=20 County.? I asked, "Carl, are you Jewish?"? He said yes, that he grew up in = a=20 Jewish section of Baltimore.? "Carl," I confessed, "you don't look Jewish,= =20 and you talk like a Communist.? What's your story?"? So we laughed about th= at=20 and chatted away as he walked to his car at the radio station parking lot,= =20 and I walked to mine.? I asked him, "Carl, what did you think of that Mark= =20 Twain quote I used to dance on your 'Deregulation is Dead' statement, when = I=20 said that rumors of deregulation's death have been greatly exaggerated?"? H= e=20 replied, "From the moment I uttered those words on the dais of the PUC=20 hearing room, I feared someone was going to tag me with that Twain quote."?= =20 And it was I.=20 Nettie Hogue was the other panelist on the FM show.? She spoke of the desir= e=20 for a core/non-core split of the default customers whereby the small=20 customers would be core, and the large customers would be non-core. The UDC= s=20 would be required to procure for the core, but not for the non-core. The=20 larger customers, who have the ability and the resources could negotiate=20 long-term contracts with suppliers other than the UDC.? If you take her=20 platform, and tweak it a little, you get something that looks very much lik= e=20 our Morro Bay principle for releasing the greater than 100kW connected load= =20 customers from UDC default service.=20 There is wrinkle in TURN's plan, however.? They want to keep all the retain= ed=20 generating assets (e.g., PG&E's hydro plants) for the core procurement=20 portfolio.? I don't think the customers in the non-core group are going to= =20 like that.? They contributed revenue requirement to those retained plants,= =20 too.? They will want a credit for their contributions.? On the other hand, = if=20 PG&E and SCE were to transition to the core/non-core split, you can be=20 assured the Utility Company's will charge both core and non-core classes fo= r=20 the carried stranded costs (the undercollection of revenue from today's=20 frozen rate debacle).? The saw cuts both ways.=20 Speaking of saws, our Governor simply did one bang up job on the State of t= he=20 State message last Monday night.? Now that I am a semi-professional talking= =20 head (Give Us Quote), I was lined up by four news reporters prior to the=20 address to standby with my opinion on the Governor's speech.? I was=20 diplomatic, sort of, to the press.? Let me tell you what I really thought.?= =20 He stunk up the joint.? I couldn't believe how nervous he was during the=20 delivery. I can understand a few slurred words, or a mispronunciation or=20 two.? But Gray was grim.? As he rock-and-rolled into the guts of his=20 comments, he sounded more and more like Mr. Rogers.? Can you say, "Eminent= =20 Domain"? He said at the outset that he wasn't going to assign blame or poin= t=20 fingers.? I was just a little hopeful that he would be conciliatory in tone= .?=20 Not.? He ranted and raved for forty minutes, half of which was bashing you= =20 folks for being, well, you folks.? You are selling his power out of State.?= =20 What is wrong with you people?? Portland based Avista's Linda Hamilton wrot= e=20 me a note, and as an aside asked, " =01( quite entertaining--your governor.= ?=20 Somehow I have yet to put together how he intends to solve the problem ".? = We=20 don't get it either, Linda.? It is a mystery.=20 Okay, E-gash heads.? Let's get it on.=20 Things in the People's Republic of California=20 ?@@@ PX has Writ all over it=20 ?@@@ What are they doing in DC?=20 ?@@@ We have a Winner=20 Letters=20 Odds & Ends (_!_)=20 ?@@@ General Meeting on February 8 and 9=20 ?@@@ Tell Us If Your Company will be Represented at the FERC Jan 23 Meeting= =20 ?@@@ WPTF accepts 30th Member=20 ?@@@=20 Things in the People's Republic of California=20 ?@@@ PX has Writ all over it=20 The California PX did something that SCE couldn't do last week.? That is,= =20 they got a federal court to take notice on a Writ for a stay on aspects of= =20 FERC's December 15 Order.? The Writ asked the Ninth Circuit Court of Appeal= s=20 to:=20 ? 1) Stay the FERC Order's prohibition against the IOU's selling into the= =20 PX.? Make such sales voluntary, rather than mandatory.=20 2) Stay the April 30 termination of the PX's CTS rate schedule because a=20 termination halts forward long-term trading in the PX's block forward marke= t=20 for contract deliveries that extend beyond April 30, and=20 3) Stay the requirement that the PX implement the $150 breakpoint. The WPTF Board deliberated on whether or not the group should support the P= X=20 in their petition.? The discussion was lengthy, and the vote took several= =20 days of e-mail correspondence between Directors.? Yesterday, the Board=20 approved it's support and filed such with the Court, all parties, and FERC.= =20 At the same time, the Ninth Circuit Court of Appeals acted to set the=20 question of whether it should grant a writ of mandamus to the PX and a stay= =20 of the December 15th order. The Ninth Circuit set the matter for oral=20 argument on Wednesday, February 7,2001, at 3:00p.m. in Pasadena. Each side= =20 will be allowed 20 minutes to present their argument. The three issues to b= e=20 argued are the issues raised by the PX in its motion for rehearing and stay= .=20 Good luck, gang.=20 Things in the People's Republic of California=20 ?@@@ What are they doing in DC?=20 This segment of the Burrito should be hilarious.? I will attempt to describ= e=20 what I think is happening at the negotiations in Washington D.C. between th= e=20 utilities, our generator and power marketing members, and the State.? The= =20 reason this will be laughable is that I don't have a clue what those people= =20 are doing, nor does the press.? Some press people have called me to see if = I=20 know.? That is a sure sign they are raking the bottom of the barrel.? Plus,= =20 when you folks in D.C. read this, you will mutter, "It didn't happen that= =20 way, at all."=20 But, without hard evidence, the best thing to do is make it up as you go=20 along.? Hey, it works for the PUC.=20 There are several issues on the table.? In the general area of deferred=20 payments, and the like, I think there is general agreement that something c= an=20 be worked out.? I bet that was concluded early on in the discussions.?=20 However, I believe the sticking point in the negotiations is the long-term= =20 forward contract prices. The State wants to "look tough" and get a 5? to 6? /kWh price.? The sellers need a lot of back-end revenue recovery and securi= ty=20 to provide such.? Contract length of a decade or more may be required.? But= =20 more difficult than contract term are the payment safeguards required on th= e=20 part of the buyers to secure a lengthy contract.? How will the sellers hold= =20 the buyer's feet to the fire, forcing the buyers to pay the contract price= =20 when future spot prices are well below the contract price?? Will the State= =20 guarantee "no regulatory out"?? No State agency, much less the Governor's= =20 office could make assurances that bind future administrations.? So how can= =20 the sellers be sure they will be paid during the out years when the contrac= ts=20 are attractive to the sellers, and less attractive to the buyers.=20 Banks will not finance deals, especially multi-billion dollar undertakings,= =20 if there is a regulatory out clause in the contracts.? That clause, alone,= =20 could make the contracts worthless.=20 The clock is ticking, too.? The Bush team is set to move into the White Hou= se=20 in ten days, and in preparation for the new FERC, Chairman Hoecker announce= d=20 his resignation effective January 18.? The Chairman, despite the faults we= =20 may assign to him, did one hell of a stand up job during his tenure.? I thi= nk=20 his greatest failure led to his greatest success.? He failed when he=20 negotiated with the ISO and the State of California to allow the State some= =20 role in the governance of the ISO and the PX, vis a vis SB96.? That was a= =20 regrettable slip for which we are still paying the consequences.? Hoecker's= =20 greatest moment was his fierce opposition to the barrage of political=20 pressure from California politicians to solve California's problems with a= =20 regional price cap.? I never thought he would stand up to that kind of=20 pressure.=20 Back to our folks in DC.? If I were one of them, I would let the utilities= =20 talk their hearts out about the need for reasonable long-term contract=20 prices.? I would then show them the security I would need to provide those= =20 "reasonable" prices without me taking on any incremental risk.? The utiliti= es=20 would tell me they are unable to provide the necessary assurances, and I=20 would sit back and say to them, "Okay, let's talk about a higher average=20 price."? And around, and around it would go.? Time is on our side.? The new= =20 federal administration will be more sympathetic to my goals of competition= =20 and deregulation.? So why not wait?? If the contract talks fail, then whose= =20 fault would that be?=20 Here is my advice to you folks freezing in the Nation's Capital.? SIGN=20 NOTHING. Help the utilities with deferred payment schedules, but hold the= =20 line on the long-term forward price until the buyers, and the buyers'=20 regulatory agencies get realistic.=20 Things in the People's Republic of California=20 ?@@@ We have a Winner=20 Just when you thought you have seen it all, along comes the super-duper=20 winner of the "Longest Petitioner's Title in a Regulatory Filing" category.= ?=20 We also issue a companion award for the longest coffee order at Starbucks.= =20 Okay, I'm not making this one up.? The Chief Legal Counsel for the Californ= ia=20 State Auditor filed at FERC the following motion:=20 OPPOSITION OF CALIFONRIA BUREAU OF AUDIT TO EMERGENCY MOTION OF MARKET=20 PARTICIPANTS TO REQUIRE THAT THE CALIFORNIAINDEPENDENT SYSTEM OPERATOR=20 CORPORATION AND CALIFORNIA POWER EXCHANGE MAKE NO DISCLOSURES OF CONFIDENTI= AL=20 INFORMATION IN OTHER PROCEEDINGS UNLESS THERE IS IN PLACE A PROTECTIVE ORDE= R=20 OR CONFIDENTIALITY AGREEMENT THAT IS SUBSTANTIALLY SIMILAR TO THE FEDERAL= =20 ENERGY REGULATORY COMMISSION'S MODEL PROTECTIVE ORDER AND MOTION TO SHORTEN= =20 TIME FOR ANSWERS, OR, IN THE ALTERNATIVE, TO STAY AND DISCLOSURE PENDING=20 COMMISSION CONSIDERATION OF THE EMERGENCY MOTION What the hell does that mean?=20 I would hate to get an e-mail from the Auditor's Counsel.? The subject=20 heading may be longer than the 2 mbyte on my download size limit.=20 Letters=20 A letter from APX's Jack Ellis who is based in London, and soon to return t= o=20 the Bay Area for more than just a week's visit, sent me the following:=20 "There's so much being written about this whole situation that it is=20 impossible for a mere mortal to read it all every day.? California has turn= ed=20 from a mess into a disaster, which raises an interesting question. "The Governor and Commissioner Wood, among others, have made very strong=20 statements against the while idea of a deregulated (really a competitive)?= =20 electricity market.? However, I think we have to ask ourselves if=20 deregulating an electricity market is such a terrible idea given the=20 experience in other countries.? Scandinavia, for example, has an extremely= =20 successful market that has been operating for ten years without the problem= s=20 that have become endemic in California?? Same for Germany, the UK, and=20 several other European countries.? Prices are reasonable, customers have=20 choice, and the market works well by any account.? Could it be that=20 competitive markets are actually a pretty good idea done right but Californ= ia=20 went about it the wrong way?"=20 Thank you, Jack.? We look forward to seeing you back here where things are = a=20 little less static.? You might miss Western Europe.? On the other hand, giv= en=20 some of the actors in our local California power play, it may become more= =20 obvious to you why the Dark Ages lasted 500 years.=20 The next letter is from BPA's Don Wolfe who asks the philosopher's stone=20 question, "Why?" He says,=20 "Concerning the CPUC proposed criteria for forward procurement, you specula= te=20 that they are confusing physical hedging with physical delivery.? Although = I=20 don't claim to have mastered the nuances of hedging versus delivery, my=20 impression was that their goal was less technical: that is, to eliminate th= e=20 traders and any intermediate transactions, likely based on the belief that= =20 prices are marked up as power changes hands.? The result is de facto=20 re-regulation, with suppliers and loads bound to one another in long-term= =20 forward contracts (with prices subject to close scrutiny and approval),=20 leaving only a residual near-term and real-time markets.? When that's done,= =20 what sort of competitive market is there?" From an anonymous friend, I received this critique of my style.? The author= =20 said,=20 "I'm sorry Gary, but your Gou Jing and Speedy Bailout analogy is just too= =20 damn one-sided.? The generators are gouging in a very imabalanced market, a= nd=20 you're pretty much saying that the utilities should bear the brunt of the= =20 failure of the market.? What viable business ever made a deal to absorb the= =20 cost when prices got out of whack?? Why shouldn't the consumers pay the=20 "fair" market price for the electricity they're consuming?? If the price=20 isn't fair, and they don't want to pay it, why not use less energy?? It is = a=20 commodity, for chrissakes!!!? I just turn off the lights when I think my bi= ll=20 is going to be too high.? My hackles go up thinking that the generators can= =20 just raise the price as they see fit... As difficult for you as it is to=20 accept, the State of California actually needs [the utilities] to transmit= =20 and distribute electricity...do you know any other entity with the means to= =20 keeps your lights on?"=20 Well, yes and no.? Any transmission operator can do the same job regardless= =20 of the location and type of physical assets. One can buy that kind of=20 expertise in the labor market.? As to market failures, and such, I suppose= =20 this letter demonstrates that there is a deep hurt, or emotional wrench, fr= om=20 being on the wrong side of an unhedged bet.? I know I would feel the same w= ay=20 if the decision were mine to hedge against the downside.? If I didn't, and= =20 prices moved against me, then I would pay the consequences. I would also fe= el=20 angry and foolish.? Here, we have millions of people who are feeling not on= ly=20 the economic pain of someone else's stupid decision, but adding insult to= =20 injury, the decision was not in the consumers' hands.? It was definitely=20 outside the reach of the people who will one way or another pay the bill.? = I=20 remain unmoved that the fault is the generators and power marketers.? They= =20 are and have been doing what they have always been trained to do: manage=20 risk, pick positions, and relentlessly pursue opportunities.? Sorry. I thin= k=20 the anger directed toward the generators and power marketers is totally=20 misplaced.=20 Finally, Phil Muller of SDC Energy responded to last week's anonymous=20 ruminations about those greedy power marketers.? Here is what Phil said:=20 "As I look back on this week's burrito and in particular the anonymous=20 critique of high prices, I can't help but working on these analogies a bit = to=20 add in some forgotten reality.=20 Let's start with the cattle business analogy. This is exactly the way cattl= e=20 producers run their businesses. Let's say the rancher actually grazes his= =20 cattle on government range land at low cost which allows him to raise many= =20 head of cheap cattle that is sold to McDonalds to make Big Macs.? The price= =20 that McDonalds is willing to pay for his beef has not gone up (he doesn't g= et=20 to set the price for his product, remember) in fact it is at a low level=20 because people are eating fewer big macs.? The reason that hay is worth $80= =20 per bale is that there's a shortage of hay and ranchers who are raising pri= me=20 beef for Morton's or breeding stock or thoroughbred race horses are willing= =20 to pay that much because of the value of their livestock.? By selling his h= ay=20 for $80, Old McDonald is making it possible for more valuable animals to be= =20 fed rather than "wasting" hay to feed scrawny cattle that no one wants to= =20 buy.? The fact that he's idling his land and equipment means that he might= =20 have the time and money to invest some of his "excess profits" in upgrading= =20 his ranch to maybe allow him to grow more beeves more efficiently in the=20 future.? This is a damned good way to run a business. "The gas station example is another good one.? In this case a monopoly sell= er=20 uses his market power to achieve the maximum possible return.? Just suppose= =20 this actually happened.? What would you do if you pulled into a gas station= =20 and were told that you'd be charged $200/gallon for gas because your tank w= as=20 empty?? If it were a matter of life or death you might buy as little as=20 possible to get you to the next gas station.? Otherwise you might call AAA = or=20 someone to come to your rescue and deliver enough gas to get you out of=20 there.? Or you might just leave your car there and hitch a ride to the next= =20 gas station.? If this gas station owner were able to pull this off with any= =20 frequency, however, you might decide to get into the gas business yourself= =20 and open a station nearby to provide gas at slightly lower prices.? We all= =20 know what happens then - competition.=20 "Finally, moving to the airline analogy - going from the bottom and working= =20 up - is exactly what happens in the electricity market.? If you have demand= =20 responsiveness, the first consumers to stop using are those unwilling to pa= y=20 the lowest high price.? When you're getting $4000/MWh prices it means that:= ?=20 1. everyone is willing to pay that price, 2. the price is not being passed= =20 through to the consumer, or 3. the consumer is not aware of the price level= .?=20 Unfortunately, in our over-regulated deregulated market, the second and thi= rd=20 results are what happen most of the time.=20 "There are only 2 ways to ration electricity during a shortage - by price o= r=20 by prescribed rolling blackout."=20 I never would have thought that several anonymous analogies would inspire s= o=20 much E-gash.=20 Odds & Ends (_!_)=20 ?@@@ General Meeting on February 8 and 9=20 Have you made your hotel reservations at the Old Scottsdale Marriott for th= e=20 evening of February 8?? The cut off date for the cheaper hotel rate is=20 January 16, next Tuesday.? The phone number for the Marriott Hotel in old= =20 town Scottsdale is 1-800-835-6205 or 480-945-1550.=20 I have two additional announcements about the General Meeting.=20 First, on Thursday evening, we will have an open discussion/keynote speaker= =20 led by Dr. Ben Zycher, Senior Economist at the RAND Corporation. Dr. Zycher= =20 has published extensively on public policy, government regulations, and the= =20 applications of these areas to the current electric deregulation crisis in= =20 California.? Dr. Zycher has also been featured in many Op-Ed pieces includi= ng=20 "Don't Blame the Power Crisis on Deregulation,"Los Angeles Times, December= =20 28, 2000.=20 Second, substituting for Scott Miller of FERC's Market Monitoring Group wil= l=20 be Bill Meroney.? Bill will be a guest speaker on Friday morning, February = 9,=20 along with our two other guest speakers:? Phil Sharp from the Harvard Kenne= dy=20 School and a member of the Bush energy-policy transition team, and John=20 Underhill of SRP.=20 All WPTF members, both Board level and general, are invited to attend the a= ll=20 members meeting on Thursday afternoon, starting at 3:30 p.m.? The no-host= =20 dinner reception ($45/person) will be held from 7 p.m. to 9 p.m. on Thursda= y=20 evening, February 8.? Reservation for the dinner must be made with our even= t=20 coordinator, Barb Ennis at <baennis@earthlink.net<. Or you can call Barb at= =20 402-468-4966.? On Friday, our General Meeting will begin at 9:00 a.m. and e= nd=20 at noon. Lunch will be provided by WPTF.=20 Odds & Ends (_!_)=20 ?@@@ Tell Us If Your Company will be Represented at the FERC Jan 23 Meeting= =20 At the WPTF Board meeting this week, there was a discussion regarding the= =20 upcoming FERC technical conference on market monitoring to be held on Janua= ry=20 23, at the FERC headquarters building in D.C.? It was understood by several= =20 of the WPTF Board members that days before the meeting, the ISO staff will= =20 release a policy or position paper on market monitoring.? A suggestion was= =20 made that any and all WPTF members who might attend that meeting should wor= k=20 together on a joint position paper that would collect our opinions and idea= s=20 in response to the ISO position, and promote any new concepts that we might= =20 develop.=20 Therefore, could you please e-mail to me the attendees from your company to= =20 the FERC meeting.? We will set up a future conference call to assemble a=20 group, and discuss the merits of different market monitoring ideas.? The=20 purpose of the group effort is that a joint response to the ISO position ma= y=20 be more efficient and timely. Any discussion WPTF conducts on market=20 monitoring will be an advocacy response to anticipated policies that may=20 emanate from the ISO and FERC.=20 Odds & Ends (_!_)=20 ?@@@ WPTF accepts 30th Member=20 We are still growing.? WPTF's 30th member, and seventeenth general member i= s=20 Xcel Energy Marketing.? Xcel is located in Amarillo, TX and Denver, CO.? Th= e=20 point person for Xcel will be Joe Morrato, Regional Sales Manager=20 (303-308-6032).? I have known Joe for several years, and I look forward to= =20 working with him again, and meeting his colleagues at Xcel.=20 Odds & Ends (_!_)=20 Well, it is the end of another long week in paradise.? Someone said to me= =20 that the rest of the year will be like this. Every week throughout the year= .?=20 It makes me cringe to think of it.=20 Usually I put some humor in the Burrito, right about here.? But I have=20 another idea.? Dan Douglass of Arter & Hadden sent me a copy of an article = in=20 Reason Magazine that was so good, it deserves to be read.? It was written b= y=20 Michael Lynch, and it is entitled, "California Scheming, Don't blame=20 deregulation for the Golden State's electricity snafus". The publisher=20 granted my request to distribute the article to you.=20 Please click on the browser button below, and read the article.? It will ma= ke=20 you feel a lot better than any humor I can think of at the moment.? Next we= ek=20 we can get back to the usual format.=20 http://reason.com/ml/ml010401.html=20 Have a great weekend.=20 gba=20 ?
|