California Energy Update--FYI

----- Forwarded by Elizabeth Sager/HOU/ECT on 04/26/2001 09:31 AM -----

Sheila Tweed
04/26/2001 09:00 AM

To: Elizabeth Sager/HOU/ECT@ECT, Karen E Jones/HOU/ECT@ECT, Dale
Rasmussen/HOU/ECT@ECT
cc:
Subject: California Energy Update--FYI

----- Forwarded by Sheila Tweed/HOU/ECT on 04/26/2001 08:49 AM -----

EFeo@milbank.com
04/26/2001 12:35 AM

To:
cc:
Subject: California Energy Update

1.? Members of the Assembly Energy Costs and Availability Subcommittee
opened? hearings today on the Memorandum of Understanding (MOU) between
Southern California Edison Company (SCE), Edison International (EIX), and the
California Department of Water and Power (CDWR).? Testifying on behalf of SCE
were SCE Vice President Bob Foster and Ann Cohen.? Additional hearings will
be scheduled next week at which time the subcommittee will hear from
representatives of the Governor, the Attorney General, and CDWR.? Among other
things, committee members questioned the wisdom of acquiring the transmission
system, particularly on an "as is" basis, the price to be paid, alternative
structures that would not require an acquisition by the state, and the rate
of return on new investment in the utility.

2.? Also in Sacramento, the Senate Select Committee to Investigate Price
Manipulation of the Wholesale Energy Market is scheduled to continue its
investigation Thursday on market manipulation.?

3.? Governor Davis' representatives have been negotiating a transaction with
Sempra, the parent company of San Diego Gas and Electric Co., to buy the
utility's transmission assets.? The Governor's representatives expect to have
an agreement within one to two weeks.

4.? Also today, Governor Davis announced the appointment of Richard Sklar to
head a team that will speed the construction of power plants in the state.?
The "Governor's Generation Implementation Taskforce" will work to bring
electrical generation facilities on line by coordinating state permitting,
siting, finance, design, and construction efforts in a "one stop shop."

5.? At its open meeting this evening, the Federal Energy Regulatory
Commission (FERC) approved an order addressing market monitoring and
mitigation for California wholesale power markets.? Based on the FERC staff
presentation and discussion during the meeting, it appears that the market
monitoring and mitigation plan for California includes the following:

(1)? a requirement that all generators which entered into a Participating
Generator Agreement with the ISO, and all non-public utilities in California
that sell into the ISO's real-time market or use the ISO transmission grid,
must offer all available electric capacity during all hours to the ISO
real-time market, except for hydroelectric units.

(2)? all public utility load serving entities in California must submit
demand bids in real-time markets during all hours.

(3)? all sales by market participants that have been granted authority by the
FERC to sell power at market-based rates are subject to a refund condition to
prevent anti-competitive bids into real time markets.

(4)?? the ISO is required to submit weekly reports to the FERC on scheduled
outages and bid data to facilitate market monitoring.

(5)?? all sales into the ISO real-time market during a period of reserve
deficiency (i.e., during Stage 1, 2 or 3 emergencies) will be subject to
price mitigation.? The FERC order will include a formula that the ISO will be
required to apply for purposes of calculating a proxy price for all such
sales.

The order will also enhance the ISO's ability to coordinate and control
planned outages.

The mitigation plan will be in effect for a one-year period, and will be
subject to periodic review.? The FERC is also requiring the ISO and the
investor-owned utilities to submit a filing by June 1, 2001, to form a
Regional Transmission Organization (RTO).? If an RTO filing is not submitted
by that date, then the market monitoring and mitigation plan will terminate
automatically.? The FERC is also directing the parties to work with RTO West
(an RTO approved for the Pacific Northwest) to develop a plan for including
California within RTO West, with a goal of ultimately creating one RTO for
the entire western interconnection.? Finally, the FERC is instituting an
investigation under Section 206 of the Federal Power Act with respect to
wholesale power sales throughout the western interconnection.? Apparently,
potential refund liability would apply to wholesale power sale transactions
in the western interconnection entered into for a period of 24 hours or less
and made when reserve deficiencies are 7.5% or less.

FERC also approved the formation of RTO West, an eight-state RTO combining
the transmission assets of nine utilities in the Pacific Northwest.? The FERC
asked the RTO to make a submission to it by December 1 of this year on its
plans for including Canadian transmission and widening the scope of its
operations in a broader regional system. RTO West first submitted its plans
to the FERC last October. It includes nine electric utilities serving eight
western states with some 50,000 miles of transmission lines. The nine
utilities include Avista, BPA, Idaho Power, Montana Power, Nevada Power,
PacifiCorp, Portland General Electric, Puget Sound Energy and Sierra Pacific.
The states where the RTO West would operate are Washington, Oregon, Idaho,
Nevada, Utah and parts of Montana, Wyoming and California.

A more detailed analysis of the FERC orders will be provided in tomorrow's
update.

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