Re: Proposed Answer of CMUA's Complaint

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=09Mary Hain
=0910/18/2000 12:37 PM
=09=09=20
=09=09 To: Christian Yoder/HOU/ECT@ECT, steve.c.hall@enron.com, Richard San=
ders,=20
Susan J Mara/SFO/EES@EES, Mona Petrochko, jdasovic@ees.enron.com, Paul=20
Kaufman/PDX/ECT@ECT, James D Steffes/NA/Enron@Enron, Joe Hartsoe@Enron, Sar=
ah=20
Novosel/Corp/Enron@ENRON, James E Keller/HOU/EES@EES, Mike D=20
Smith/HOU/EES@EES, Harry Kingerski/HOU/EES@EES, Dennis Benevides, Tim=20
Belden/HOU/ECT@ECT, Robert Badeer/HOU/ECT@ECT, Jeff Richter/HOU/ECT@ECT
=09=09 cc: Christi Nicolay, carrrn@bracepatt.com
=09=09 Subject: Proposed Answer of CMUA's Complaint

As you have already heard, California Municipal Utilities Association filed=
a=20
complaint with FERC asking for cost based rates. The following is a brief=
=20
outline of an EPMI/EES answer to the complaint. The answer is due Friday. =
=20
Please send me any comments ASAP.=20

? The complaint should be rejected because it wrongly assumes that the=20
Commission has no option to ensure just and reasonable rates but to require=
=20
cost based rates because there is no low cost solution to the problems=20
currently faced by the California markets. We should attach our white pape=
r=20
to our protest and state that the paper explains how these problems could b=
e=20
solved at little or no cost to the customers. =20
? I list here, for your information, the reasons CMUA claims that markets a=
re=20
not competitive (these reasons will not be re-listed in the pleading).=20
? 2000 prices greatly exceeded 1999 prices without regard to load.
? zonal constrained prices, even in the off-peak hours, do not reflect=20
competitive outcomes for low load conditions. =20
? even small players can be price setters
? The changes required are additional generation, transmission, and demand=
=20
response and will cost tens of millions of dollars and take lengthy periods=
=20
of time to implement.
? There is no evidence that markets will ensure just and reasonable rates i=
n=20
the near future.
? CMUA asserts that with the advent of electric restructuring, the Commissi=
on=20
has increasingly allowed energy and ancillary services to be sold at=20
market-based rates. However, CMUA is wrong in the context of the West wher=
e=20
there has been market-based trading of electricity before electric=20
restructuring, since the FERC approved the Western Systems Power Pool=01,s=
=20
contract in 1991. The Commission=01,s rules didn=01,t create the wholesale=
market=20
in the past, the market did and it was running fine until it was messed up =
by=20
certain market rules were imposed that are enumerated in our paper. The=20
problem is not the market-based rates. The problem is the market rules.
? CMUA=01,s motion does not address how market-based rates would be calcula=
ted=20
for marketers that do not sell power from their own resources, let alone=20
reflect the trading of basis points. Almost all of the power EPMI sells is=
=20
power it has bought from some other marketer or generator. Many of EPMI=01=
,s=20
deals are done through brokers such that EPMI does not find out the identit=
y=20
of the seller until after a deal has been struck. Accordingly, EPMI gets n=
o=20
information about the cost of the underlying generation.=20
? If FERC doesn=01,t try to fix the market but simply takes away our=20
market-based rates, since there=01,s is no basis for us to set cost based r=
ates,=20
we would go out of business. Besides there=01,s no reason to take away our=
=20
market-based rates because we are not exercising market power. So if FERC=
=20
could fix the problem with a less onerous solution (as we=01,ve proposed in=
our=20
white paper), requiring cost-based rates would constitute a regulatory taki=
ng=20
of our business and we would have to be compensated using the constitutiona=
l=20
standard.=20
CMUA does not provide any expert testimony to support its position. Rathe=
r,=20
its evidence is =01&drawn from materials prepared and testimony delivered b=
y the=20
California ISO and other public sources.=018 Beyond the difficult evidenti=
ary=20
issue posed by the fact that CMUA cannot swear to the veracity of informati=
on=20
produced by third parties, EPMI would have no opportunity to conduct=20
discovery or cross-examine of such =01&witnesses.=018=20