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----- Forwarded by Susan J Mara/NA/Enron on 11/08/2000 11:43 AM ----- Gary Ackerman <foothill@lmi.net< 11/06/2000 11:41 PM Please respond to foothill To: Bill Ross <billr@calpine.com<, Bob Anderson <Robert_Anderson@apses.com<, Carolyn Baker <cabaker@duke-energy.com<, CHARLES A MIESSNER <camiessn@newwestenergy.com<, Corby Gardin <jcgardin@newwestenergy.com<, curt hatton <curt.Hatton@gen.pge.com<, Curtis Kebler <Curtis_L_Kebler@reliantenergy.com<, Denice Cazalet <dcazalet@apx.com<, Greg Blue <gtbl@dynegy.com<, Jack Pigott <jackp@calpine.com<, Ken Czarnecki <Ken_J_Czarnecki@calpx.com<, Kent Wheatland <KEWH@dynegy.com<, "Klemstine, Barbara A(F56661)" <barbara_klemstine@apses.com<, Randy Hickok <rjhickok@duke-energy.com<, Rob Lamkin <rllamkin@seiworldwide.com<, Rob Nichol <rsnichol@newwestenergy.com<, robert berry <berry@apx.com<, Roger Pelote <roger.pelote@williams.com<, Sue Mara <smara@enron.com<, Jeff Crowe <jcrowe@apx.com<, Dan Douglass <douglass@arterhadden.com< cc: bcc: Subject: Draft Comments for Thursday Folks, Here is my first draft. My time trial shows it takes 6 min and 45 seconds to deliver. We need to cut. Dan, can you send me a front end to this that I will utilize to make copies? Send me the front end from last week's filing supporting EPSA's motion. I'll take comments up to 12 noon Wednesday. gba ============================= The Western Power Trading Forum (WPTF) is a California non-profit trade association of almost thirty members who sell, buy and exchange power throughout the Western U.S. We are pleased to provide comments on the following areas in response to your Order issued last week. 1. Price caps and their unintended consequences 2. Forward scheduling, penalties, mandatory must-buy, and 3. Independent Governing Boards. First, I would like to take this opportunity to express our overall gratitude to the Commission for issuing its Order. The members of WPTF have been bitterly frustrated by the events of the last summer, and equally upset by the actions of non-jurisdictional parties in their attempt to grab the steering wheel of restructuring, and drive it into the ground. As I listened to your comments last week, I took note of all the things you said, and the stated purpose of your actions. After listening to you, and reading the Order, I very much wanted to be here today, even if it only afforded me a brief 5-minutes of your time. I would have flown here from California even if you only allowed me one phrase to be uttered publicly. And that phrase would be "Thank you. Thank you for taking the bold step forward to revive California's wholesale power market. Thank you for having the courage to stand up to parochial interests which are entirely self serving, and absent of any national policy goals." This Commission took a stab at correcting California's problems utilizing several measures, one of which was a $150 price cap. Whereas we applaud the Commission's effort, we find that price caps send the wrong signal to both suppliers and load. We have found that price caps misallocate resources, and as your Staff report demonstrates, increases exports of power to other parts of the grid where no caps exists. We find that price caps discourage demand-side participation, and at the level proposed, will discourage much needed peaking generation resources. We also find that any price cap, but especially at the level you have proposed, will create unintended consequences. For example, when market bids exceed $150, sellers will avoid bidding into the ISO or the PX. Will the market solution be as simple as bidding instead into a competitive exchange to the PX, such as APX, or AlTrade? Will the liquidity of the bids suddenly flip from one market to another because of an arbitrary line below which the single price auction operates, and above which the bilateral market prevails? That is a huge hammer, a huge movement of tens of millions of dollars moving within the space of an hour from one trading vehicle to another. WPTF has been against price caps, and continues to believe that price caps do much damage, and do not protect consumers. The damages include prolonging high prices, reducing price discovery, and reducing the quantity of long-term offers that otherwise would afford consumers much-needed price protection. Average prices do not diminish with caps, in fact, as you know, August prices in California were much higher than last June, even though the buyer price cap imposed by the ISO Governing Board was $250 instead of $750. We recognize that the political reality is such that regulators don't like price spikes, and caps are a quick solution. If you feel that price caps must be imposed, then limit the damage. We believe that Commissioner Hebert's price cap proposal which starts at $250, and increments upward by specific amounts at specific times would be the least damaging. We also believe that a formulaic price cap that moves with respect to demand, or fuel price would be the most harmful. Market participants can not conduct business with so much uncertainty hanging in the balance. The Commission recognized on the matter of Governance that California needs regulatory stability, and the Commission is pursuing policy options to regain much needed stability. On the other hand, floating price caps work in the opposite direction. They reek havoc because they inject more uncertainty, and lessen stability. If price caps are at all necessary, stick to the least damaging approach. WPTF supports forward scheduling of demand, the imposition of real-time penalties, and we support elimination of the must-buy provision embedded in the California PUC Preferred Policy Decision. Underscheduling of load has been a practice that has lead to economic dislocation, and reduced grid reliability. Mandatory pre-scheduling will get the ISO back on track by prudently limiting the amount of load that can be exposed to real-time resolution. Also, by eliminating the must-buy provision, the UDCs can no longer complain about "supply not showing up". Their avenues for finding cost-effective supply will be unlimited. Finally, we support the replacement of the stakeholder boards with independent board members. Whereas we have been troubled by the antics of the ISO Governing Board, we must note that the PX Governing Board has not had the same type of problems. The PX Governing Board has done much better at finding solutions to thorny problems. But it is asking too much, we think, to spare one and eliminate the other. The actions of the ISO Governing Board have proven to be highly damaging to the credibility of electric restructuring. Other states eschew restructuring after observing the endless debates, the layers upon layers of State interference in the workings of the California ISO Governing Board, and the leverage exercised by voting blocks of Governors with interests totally removed from the well-being of the very institution on whose Board they serve. We are concerned that the rules you have laid out for replacing the stakeholder Governing Board may not be enough. There may be incredible pressure placed upon the existing Board members to select candidates that further the aims of those that claim to protect consumers, but in fact, are making a power grab. My organization promises the Commission that if we suspect, if we have evidence, if we detect, or otherwise observe actions by a few to undermine the independence of a new Board, I can assure you I will be back here raising my voice loudly in protest. The California market simply can not survive serving two masters. The jurisdictional tug of war must end quickly so that we all can move forward and pursue the goals and ambitions set out by this Commission in Orders 888, and 2000. Thank you.
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