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Enron Mail |
Late yesterday, Steve Kean assembled a meeting of staff from across business
units to discuss the legal and regulatory implications of current events in California. Here are the notes I captured from the meeting. Background: The hard cap is still in place in Calif. electric market at this time (although the FERC has proposed moving to a soft cap under which prices above the cap would be allowed if cost justified). As of yesterday, electricity is still flowing out of the state. The governor has asked people to cut back on their electric usage, including Christmas lights. With rolling brown-outs a possibility, there is a belief that people will go ahead an sell power at high prices above the hard cap, counting on the soft cap (i.e. regulators wanting generator to keep running at high-prices if that is what it takes to keep going). But, this causes an interesting dilemma under which generators which have $5-6 gas are better off selling their gas, as only generators that can show a $27 gas price would be able to charge market electric rates. Parties with $5-6 gas are better off reselling the gas for another use. Delivered gas at Cal. border is $26-27 ($33.75 today) for the remainder of the month, $19 for Jan. base load and $8 summer deliveries. It was reported that SoCal gas has been buying $24 gas to fill up storage this week to get ready for cold weather/increased loads next week. This doesn't completely track with ETS understanding that SoCal was withdrawing gas from storage this week. Issue: ENA is worried about two things: Whether it is prudent to sell generation at high prices counting on the ability under the soft cap to demonstrate that costs exceed $150/MW. Whether gas will be curtailed & if so what are ENA's obligations EES is likewise concerned about curtailments to its customers (utilities have been curtailing, but not yet down to the core level). If EES is curtailed by the utility, they don't have an obligation to the industrial to keep serving them. But if the utility is operating under the diversion section of its tariff to meet core customers needs, the utility can require that the marketer keep their gas on or pay a penalty. ENA is EES' supplier. If EES load is cut, ENA might face the choice of keeping the gas on and being paid a diversion payment or paying a penalty under the utility tariff. Action Steps: Steve formed a task force to study how curtailment/diversion/force majeure risks play out at each chain across the gas and electric grid in California. Once completed, he wants to undertake this analysis for the east coast, Alberta, TX and Florida regions. Develop a PR campaign. Steve's preference would be to get out early with a message about what is going on in the California gas market. In essence, he would like to be on the offensive with a message that the problem is (1) that utilities are gambling with ratepayer money -- not filling storage, not entering fixed price deals; and (2) the electric price cap is also causing strange behavior in the markets. The ENA traders do not support this strategy. They prefer to lay low, arguing that the PR strategy did not work in the California electric market.
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