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Enron Mail |
In light of the Commerce Committee Hearing and the FERC Hearing on the 11th
and 12th, wanted to provide a quick synopsis of the CPUC Hearing in SD. It was the same quasi-legislative format as the previous hearing. Speakers were invited by the Commission and only the ALJ and the Commissioners could cross-examine the witnesses. Commissioners Lynch and Wood presided. Michael Kahn, chairman of the Electricity Oversight Board was there and participated in some cross-examination as well. Speakers were: ISO: Kellan Fluckiger, COO Anjali Sheffrin, Director of Market Analysis Frank Wolak, Chairman of Market Surveillance Committee Cal PX: David Jermain, former VP, Compliance, Audits & Reg. Affairs Seth Wilson, South Coast Air Quality Management District: Carol Coy, Deputy Executive Director CPUC: Harvey Morris, Principal Attorney SDG&E: Donald Garber ISO's main message was that many factors contribute to the high prices in the wholesale market: 1. Demand growth over past two years at or around 5% (98-99, 99-00) 2. Lack of generation additions in entire west 3. Reduced imports of electricity from NW, due to low hydro and policy to retain water in spring. 4. Natural Gas price increases over 1999, at almost 2x's 1999 levels in August 5. Nox emissions trading at or around $40/pound 6. Increased underscheduling from June-August ISO has concluded that the reduction in the price caps (from $500 to $250) have increased the overall cost of electricity, with the highest total cost/MWh ($180) experienced in August, relative to $167/MWh in June and $118 in July. Reason given is that the caps have reduced markup (could be interpreted as generator profit) in peak hours, but supply costs have been driven up in lower load hours. While ISO staff said they will seek an extension of its authority from FERC to be set price caps, also raised concerns about the affect any further reductions would have on the market. They conclude that such a reduction would deter new investment, preclude generators from recovering fixed costs of production, and increase dependence on OOM purchases (as a result of lower imports). ISO staff will make a proposal to the ISO Board, October 6, to do the following: 1. File for extension of price cap authority to FERC. 2. Request FERC to institute mandatory forward contract requirement on generators for a significant portion of their capacity. 3. CPUC should allow full peak requirements to be forward contracted and hedged by UDCs 4. CPUC and state should promote price responsive demand programs 5. Maintain sufficient planning reserves. ISO Staff also stated that: 1. Need to create disincentive for underscheduling for load and generation a. Charge OOM cost to underscheduled load b. Charge replacement reserve cost to underscheduled generation c. Additional charge for real-time market transactions 2. Attract and expedite new resources MARKET POWER: While the Commissioners spent the majority of the day picking apart the underlying reasons for the rise in prices, the conclusion of the hearing was President Lynch asking the ISO and PX to name names on who has been exerting market power. Both the PX and the ISO said that it would be impossible to determine from the information they have. Secondly, the analysis they have done show that no single market participant is consistently exhibiting the ability (opportunity) to exercise market power. Therefore, at one point or another, nearly every market participant has market power. Wolak suggested that in order to reduce the amount of market power in peak periods, require forward contracting OR increase profit incentives in off-peak period, where generators many times sell below short-run marginal costs. No further quasi-legislative hearings are planned.
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