FW: FYI two articles from Tuesday (in case you missed them)

---------------------- Forwarded by Carla Hoffman/PDX/ECT on 11/29/2000 06:12
AM ---------------------------

Enron Capital & Trade Resources Corp.

From: "Pergher, Gunther" <Gunther.Pergher@dowjones.com<
11/29/2000 06:05 AM

To: undisclosed-recipients:;
cc:
Subject: FW: FYI two articles from Tuesday (in case you missed them)

< -----Original Message-----
< From: Golden, Mark
< Sent: Tuesday, November 28, 2000 6:56 PM
< To: Pergher, Gunther
< Subject: FYI two articles from Tuesday (in case you missed them)
<
< FERC Unclear On Pay For Must-Run Units, Capital Return
< By Jason Leopold and Mark Golden
< OF DOW JONES NEWSWIRES
<
< NEW YORK (Dow Jones)--The U.S. Federal Energy Regulatory Commission,
< which is
< working on its final order to fix California's broken electricity market,
< isn't
< clear on how the new rules will price power from must-run generators or
< how
< generators will be paid a return on their capital investments, a FERC
< commissioner said Tuesday.
< In its preliminary proposal Nov. 1, FERC said that California's
< wholesale
< electricity market price could have a "soft cap" of $150 a megawatt-hour,
< but
< the state could purchase additional power at more than $150/MWh if needed.
< Suppliers would be paid the price at which they bid in their power would
< have to
< justify why their costs exceed $150/MWh. Further, the FERC could lower the
< sales
< price upon review.
< As reported Monday, FERC commissioners likely will set the "soft cap" at
< $100/MWh in the final ruling, which is expected in the middle of December,
< instead of the initially proposed $150/MWh.
< The FERC, however, still doesn't know how generators selling power above
< the
< cap will be reimbursed for investment in addition to marginal generating
< costs.
< When generators are paid only their marginal costs, they have no money
< left to
< pay off fixed costs and go broke. Fixed-cost recovery as a percentage of
< per
< megawatt-hour sales price varies widely based on how many hours a year a
< generator operates. Inefficient peaking units that run only a couple
< hundred
< hours a year, for example, need to be paid very high prices per hour to
< cover
< fixed costs.
< In addition, the state has contracts with several independent power
< producers
< whose generators must run - or at least be available to run - all the time
< for
< system reliability. Currently, these "resource must-run" units get paid
< the
< market clearing price, but a clearing price of $100/MWh won't cover the
< fixed
< costs of gas-fired units at current prices for natural gas in California.
< "We're not clear on these issues, and we're seeking comments on them,"
< said
< the commissioner, who spoke on the condition of anonymity.
< Others in the industry are also skeptical about how the new "soft cap"
< will
< work.
< "I don't think the FERC knows what it's getting itself into. Maybe they
< will
< just take all these documents and sit on them for years, and never change
< the
< prices," Dynegy (DYN) Marketing & Trade senior vice president, Lynn
< Lednicky
< said Tuesday while attending a CalPX conference in New York City.
< -By Jason Leopold and Mark Golden, Dow Jones Newswires; 201-938-4604;
< mark.golden@dowjones.com
<
< (END) Dow Jones Newswires 28-11-00
< 2333GMT(AP-DJ-11-28-00 2333GMT)
<
<
< Cal PX Panel: Building Forward Market Key To Power Woes
< By Mark Golden
< Of DOW JONES NEWSWIRES
<
< NEW YORK (Dow Jones)--A panel of market economists assembled by the
< California
< Power Exchange debated Tuesday whether the CalPX should move from a
< single-price
< auction for pricing electricity in the spot market to an "as-bid" market,
< which
< the U.S. Federal Energy Regulatory Commission has proposed.
< The consensus, however, was that moving purchases out of the spot market
< into
< a forward market is more important to solving California's electricity
< crisis,
< and that if a forward market develops, the pricing mechanism of the CalPX
< spot
< market won't be that important.
< "Dynegy favors an as-bid market, but it's not a matter of religion for
< us,"
< Dynegy (DYN) Marketing and Trade senior vice president, Lynn Lednicky,
< told the
< economists.
< "If I could wave a magic wand and create a forward market for
< California, I
< wouldn't get all excited about whether the spot market is single-price or
< as-bid," Lednicky said.
< Under its current single-price auction, the CalPX pays all suppliers the
< price
< for the last, most expensive megawatt taken for a given hour the next day.
< In
< the FERC proposed as-bid market, suppliers whose energy is taken would get
< paid
< only the price at which they offered to sell their electricity to the
< states'
< three main utilities.
< The economists agreed that California legislators and regulators erred
< gravely
< in prohibiting utilities from entering into long-term forward contracts
< with
< suppliers when they began to deregulate the industry in 1996.
< "What were they thinking? Were they thinking at all?" asked University
< of
< Maryland professor Peter Crampton.
< Even though California utilities are no longer prohibited from
< participating
< in the spot market in general, the California Public Utilities Commission
< still
< hasn't approved any forward market contracts put before them by utilities
< that
< have reached agreements with suppliers, Lednicky said.
< Crampton, nevertheless, thinks that keeping the single-price auction
< would
< help promote a forward market. Single-price auctions are more volatile
< than
< as-bid markets, Crampton said, and forward markets are used more when spot
< markets are more volatile. In addition, the single-price mechanism should
< be
< kept because an as-bid market is a disadvantage to smaller generators, who
< would
< have to spend a lot of resources relative to their size constantly
< figuring out
< how to bid in their power, Crampton said.
< When asked, Lednicky agreed that the FERC proposal, which was issued
< Nov. 1
< and will result in a final order around the middle of December, isn't
< really an
< as-bid market anyway. FERC said that the clearing price could be capped at
< $150
< a megawatt-hour and that the CalPX could purchase additional power at more
< than
< $150/MWh as-bid, but suppliers would have to justify their prices by
< documenting
< costs, and the FERC could lower the sales price after the fact. As
< reported
< Monday by Dow Jones Newswires, FERC likely will set the "soft cap" at
< $100/MWh
< instead of $150/MWh in the final ruling.
< Also, FERC would have to decide how more expensive generating plants
< would be
< reimbursed for investment in addition to marginal costs. Investment
< recovery as
< a percentage of sales price varies widely based on how many hours a year a
< generator operates.
< "I don't think the FERC knows what it's getting itself into. Maybe they
< will
< just take all these documents and sit on them for years, and never change
< the
< prices," Lednicky said.
< The panelists and other participants Tuesday seemed to agree that an
< as-bid
< pricing mechanism probably won't lower prices that much over the long
< term, but
< it may lower prices significantly in the short run. They also agreed that
< the
< constant changing of market rules and the regulatory environment in
< California
< is a disincentive to investment in building new power plants in and around
< the
< state.
< By Mark Golden, Dow Jones Newswires; 201-938-4604;
< mark.golden@dowjones.com
<
< (END) Dow Jones Newswires 28-11-00
< 2159GMT(AP-DJ-11-28-00 2159GMT)
<