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---------------------- Forwarded by Carla Hoffman/PDX/ECT on 10/30/2000 11:17
AM --------------------------- Enron Capital & Trade Resources Corp. From: "Pergher, Gunther" <Gunther.Pergher@dowjones.com< 10/30/2000 06:09 AM To: undisclosed-recipients:; cc: Subject: DJ Cal-ISO Price Caps Prompt Concern Among Mkt Watchers 13:15 GMT 30 October 2000 =DJ Cal-ISO Price Caps Prompt Concern Among Mkt Watchers (This article was originally published Friday) By Jessica Berthold OF DOW JONES NEWSWIRES LOS ANGELES (Dow Jones)--Market watchers and some California Independent System Operator board members voiced concerns about Thursday's ISO vote to impose hourly wholesale power price caps. The vote's opponents say the caps may inhibit forward trading and could affect the construction of new generation in the state. They also say the vote should have waited until after the Federal Energy Regulatory Commission releases its report on California's electricity woes Wednesday. The price caps, effective Nov. 3 or as soon thereafter as possible, will be set monthly and will vary based on ISO forecasted load, monthly gas prices and unit efficiency. The ISO will multiply the average closing price for natural gas over the last three days of NYMEX Henry Hub futures contracts by a fixed measure of generation efficiency at various load levels. For example, if the ISO's forecasted load is 25,001-30,000, the fixed efficiency rate of 14,175 will be multiplied by the natural gas price - say $6/mmBTU - to yield a rounded price cap of $90/MWH. Market sources, who asked not to be named, said that although the ISO filed a proposal with FERC Oct. 20 requiring utilities to boost forward market purchases, the forward market was reacting negatively Friday to the price caps. The ISO appeared to be encouraging forward contracts with its FERC filing but its latest vote is an about face, traders said. "Traders are telling us they are pulling away from forward positions because they don't know what's going on," said California Power Exchange spokesman Jesus Arredondo. "On Monday to Thursday we traded 850 contracts and yesterday we traded 175. Today's there's nothing. There's been one offer at $59 per megawatt hour for five years and no one is touching it." CalPX, which operates the state's day-ahead and block forward market, plans to file a formal response to the ISO proposal with FERC. Market sources said CalPX wasn't in support of the proposal. Market watchers also said that if California ever needs to buy power out of market, those prices will be higher than the cap. Over the summer, the ISO spent a record $101 million on last-minute out-of-state power purchases last summer. "Those inflated out-of-market purchases are what drove the market's high prices this summer," said one source close to the issue. California wholesale electricity prices hit unprecedented levels last summer, and customers in San Diego's fully deregulated market saw their bills triple as a result. ISO board member Mike Florio, who wrote the price cap proposal, stressed that it was a temporary measure that would be terminated as soon as broader market reforms were in place. "This is a three-to-four month proposal and not something we are going to deal with going into the peak period," Florio said. Generators suggested that capping the market might be a disincentive for those looking to build new generation in the state, and that the ISO proposal was untimely given FERC's Nov. 1 release of a report on California's electricity market problems. "The ISO said in its (Oct. 20) filing that FERC needs to be that venue that the wholesale market deals with and we agree with that," said Duke Energy (DUK) spokesman Tom Williams. Several ISO members who voted against the proposal also cited FERC's Nov. 1 report as presenting a possible conflict. "What do I do if FERC comes out with an order contrary (to the caps) on Nov. 1?" said ISO President Terry Winter, who voted against the proposal. Many board members didn't expect to vote on price caps at Thursday's meeting, since a vote on broader market redesign proposals was postponed until November. "This is the wrong time to vote on this if we are not doing comprehensive market redesign today," said board member Barbara Barkovich. Consumer group The Utility Reform Network supported the proposal, saying that action was needed to control the market immediately. Proposal sponsor Florio is a member of TURN. "The ISO has the responsibility to deal with what it can without waiting for FERC. FERC needs a signal that the ISO is serious," said TURN president Nettie Hoge. Hoge also said that she was wary of arguments that the building of generation will be stifled due to the caps, because the caps "are well within a reasonable level." "It's clear the market isn't functioning," Hoge said. "There's going to be lots of debate about going outside the market versus command and control. I don't think the discussion is even in that arena. We have a crisis. Those who say it will get better on its own are living in a fantasy." -By Jessica Berthold, Dow Jones Newswires; 323-658-3872; jessica.berthold@dowjones.com (END) Dow Jones Newswires 10-30-00 0815EST Copyright © 1998, Dow Jones & Company Inc G_nther A. Pergher Senior Analyst Dow Jones & Company Inc. Tel. 609.520.7067 Fax. 609.452.3531 The information transmitted is intended only for the person or entity to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender and delete the material from any computer. <<Gunther Pergher (E-mail).vcf<< - Gunther Pergher (E-mail).vcf
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