|
|
Enron Mail |
Attached is a brief proposal for economics arguments against the CPUC's
proposal for load based price caps. Obviously, these arguments would also apply to the ISO Board's recent decision. ---------------------- Forwarded by Mary Hain/HOU/ECT on 10/27/2000 03:00 PM --------------------------- Enron Capital & Trade Resources Corp. From: "Seabron Adamson" <seabron.adamson@frontier-economics.com< 10/27/2000 10:58 AM To: <mary.hain@enron.com< cc: <rcarroll@bracepatt.com<, <James.D.Steffes@enron.com< Subject: Motion for Interim Relief by CPUC Mary: cc: Ron, Jim I have had a quick read-through of the CPUC Motion, as requested. There would appear to be two salient points. 1) CPUC asks for FERC to impose strict load-differentiated price caps. These would be imposed using a formula based on "margina1 heat rates" times an index gas price. So the maximum cap would be around $100 and the minimum could be quite low off-peak - more like $30-40/MWh. Needless to say this does not recognize the opportunity costs of power in other markets. It was also completely make redundant any trading into California. The prices would rise immediately to the low caps, so there would be no incentive for anyone to enter into any commerical hedging arrangements. The mechanism is basically similar to the old SRAC QF contracts, but without the capacity payments. 2) CPUC asks that FERC require all jurisdictional generators AND marketers to offer forwards contracts for a substantial portion of their capacity at FERC regulated rates and conditionns for 18-36 months. They claim these are like the UK and Australian "vesting contracts", but these involved significant capacity or options payments as well. CPUC request that all generators and marketers should be instructed to begin preparation of cost-based filings (how this would actually work is not stated). Needless to say the implementation of any of this would be wiping out the market for up to three years, and eliminating any potential profits from current long positions in the market. The schemes they have proposed have numerous problems - even if the objectives were desirable - so there is plenty to poke holes in. The decision on whether to file any response to me would seem to be based on whether these issues will be completely addressed in FERC's order, making the CPUC Motion irrelevant. If there is any chance that the CPUC could be taken seriously their motion should be opposed, as the restrictions on the market are quite onerous. Any players with long positions in the market would stand to lose quite a bit under the proposed capped rates at these levels. Seab This e-mail, and any attachments thereto, is intended only for use by the addressee(s) named herein and may contain legally privileged and/or confidential information. If you are not the intended recipient of this e-mail, you are hereby notified that any dissemination, distribution or copying of this e-mail, and any attachments thereto, is strictly prohibited. If you have received this e-mail in error, please immediately notify me at (617) 354-0060 and permanently delete the original and any copy of any e-mail and any printout thereof. Seabron Adamson Frontier Economics Inc Two Brattle Square Cambridge, MA 02138 USA Ph: (617) 354-0060 Fax: (617) 354-0640 seabron.adamson@frontier-economics.com www.frontier-economics.com
|