Message-ID: <27734499.1075863622656.JavaMail.evans@thyme> Date: Thu, 24 Aug 2000 19:09:00 -0700 (PDT) From: foothi19@idt.net To: charlotte@wptf.org Subject: WPTF Friday Credo Veritas Burrito Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: Gary Ackerman X-To: webmaster X-cc: X-bcc: X-Folder: \Jeff_Dasovich_Dec2000\Notes Folders\Wptf X-Origin: DASOVICH-J X-FileName: jdasovic.nsf THE FRIDAY BURRITO "...more fun than a fortune cookie, and at least as accurate." There is a hint of Autumn in the air. I don=01,t know if it=01,s wishful thinking, or if the seasons are really beginning to turn from our pale summer into a Bay Area glorious Fall. It=01,s premature, I know. A few fallen leaves, the start of schools, slightly longer afternoon shadows ... I=01,m jumping the gun. I can=01,t wait for this summer to be over, especially this summer. The pounding never stops, and as I hear the din of the cash register ringing with each climb in Southwest temperature, I can barely keep track of all the hiccups which drive prices up: fires in Montana restricting transmission paths, blown up interstate gas pipeline in New Mexico, diminishing N-Ox credits for in-state power plants, depleted inventory of hours of voluntary load interruptions for commercial and industrial customers, credit limits restricting imports of Canadian power into the Northwest and California, and BPA buying about 1,000 MW to cover its short hydro position. I also get the willies every time another politician lambastes the California restructured power industry. I just want to end to the summer, now, and start a two week Fall vacation ... anywhere, even in Cleveland. There are seven, count them, seven investigations into some aspect of the wholesale power market out here. Two days ago there were only six, but FERC just added another yesterday in response to the Prez=01,s request. That means FERC has two, the PUC has two, the State Attorneys General has two (one on the ISO Governing Board, and one on the in-state generators), and one by the Electric Oversight Board. If you don=01,t have an ongoing study of the California Market, then you=01,re not hip. All of these investigations, save FERC=01,s Section 206 Investigation, are going to amount to near nothing. A lot of wasted time and paper. The PUC and EOB studies have their conclusion sections all finished. Now they need some evidence to support their assertions. And how are we holding up under all of this? How are you doing? I talk to many of you throughout the week, and I know how frustrated you are. I share your frustration. You want to tell the public, the press, and anyone in between the truth. You want to lay out the facts. You want to show anyone who will listen that each interference into the market is making things worse, not better. The price caps, for example, are damnable and screwing up the prices, much to the detriment of those people for who price caps were supposed to be a protection against price shocks. Now they are receiving higher average prices. The public isn=01,t going to listen to anything longer than a sound bite. And let=01,s face it, when it comes to stellar public relations, our industry is not known for turning in A+ performances, except for SCE. Those guys seem to get their story in front of the public at every turn. I heard SCE is putting on their customers=01, bill, =01&Here is what you would have paid if the rate freeze ended ....=018. But many of us in the new power industry, borne from the loins of either the natural-gas industry or nuclear-power business, learned the hard way that the best response to a public inquiry is a two-block head start in front of an angry mob. Keep your head down, shut your mouth, and this too shall pass. I don=01,t buy that approach, at least not anymore. That is, I don=01,t believe we have anything to hide, or of which to be ashamed. What electric restructuring is about is correct, beneficial to the public, and in everyone=01,s best interests. Look at it this way, when they pat the last shovelful of dirt on your final resting place, for what do you most want to be remembered? That you caved in to the political will of others, or at a moment when you had the chance, you did what was right instead of what was expedient? I think the choice is easy, albeit laced with sheer terror. Those bland homilies I so diligently teach my kids (e.g., tell the truth, do what is right, think of the big picture and not just yourself) are a lot easier to speak than to live by. So join me and stand up for what you believe. They can=01,t take away your pride, not yet. Here is this week=01,s line up. >>> Things in the People=01,s Republic of California @@@ Excerpts from FERC=01,s Order on SDG&E Complaint @@@ The Development of a Super-Peak Block Energy Product >>> The Mailbag: A Letter from My Friend, and A Response >>> Odds and Ends (_!_) @@@ Finish the Story Contest @@@ October General Meeting @@@ What Makes Houston, Houston? >>> Things in the People=01,s Republic of California @@@ Excerpts from FERC=01,s Order on SDG&E Complaint President Clinton commented from the Rose Garden that good folks in San Diego, retired, fixed-income, likely to vote for a Democrat, are making choices between buying medicine or air conditioning their homes. I call this the Del Monica Beach lecture. The Prez instructed the FERC to investigate the situation in California, and FERC wasted no time. In response to SDG&E=01,s August 2 complaint, whereby the utility asked FERC to impose a $250 price cap on generators in the region, the FERC responded in a way that I was hoping to see several months ago. The FERC slammed SDG&E on their complaint for lack of merit, and the FERC also initiated an FPA Section 206 Investigation into the wholesale power market in California. Here are some of the juicy excerpts from FERC=01,s Order: =01&In this order, ... , we are denying SDG&E's requested immediate imposition of a price cap on all sellers in California. However, we are instituting consolidated hearing proceedings pursuant to section 206 of the Federal Power Act to investigate the justness and reasonableness of the rates and charges of public utilities that sell energy and ancillary services to or through the California ISO and PX, and to also investigate whether the tariffs and institutional structures and bylaws of the California ISO and PX are adversely affecting the efficient operation of competitive wholesale electric power markets in California and need to be modified =01&SDG&E concludes that the markets cannot be workably competitive if sellers are able to exact prices that are considerably above levels that would prevail in open competition, i.e., sellers are able to bid and receive prices significantly above their marginal costs. SDG&E also argues that the hour-to-hour volatility in imbalance energy prices and the erratic clearing price for ancillary services is an indication that the market is breaking down when it is moderately stressed. =01&While we find it appropriate to institute a section 206 hearing on these issues, we cannot implement an immediate price cap of $250/MWh as requested by SDG&E because there is no record before us to support such an action. ... While the issues raised by this complaint are important, the Commission has no basis to conclude that SDG&E's proposal to place an immediate, arbitrary $250/MWh cap on the price that every public utility seller of energy and ancillary services may bid into the PX and ISO markets would satisfy this standard. SDG&E has provided no evidence to demonstrate that all potential sellers are able to exercise market power, has not documented a single instance of a seller exercising market power during times of scarcity, and did not attempt to show that the conditions underlying the Commission's approval of market-based rates for public utility sellers of energy and ancillary services have changed. Nor did it address specific market or institutional factors that may be causing rates to be unjust or unreasonable. =01&SDG&E asserts that the ISO's congestion management and market structures are flawed and in need of overhaul. ... Furthermore, SDG&E expresses its concern that, for a number of reasons, the congestion management and market reform efforts being pursued by ISO stakeholders will not produce meaningful results. SDG&E indicates that it is prepared to work with the ISO to develop alternative reform proposals; however, SDG&E's complains that the ISO stakeholder process has, in SDG&E's judgment, been ineffective with respect to these issues. =01&Various interveners contend that SDG&E's arguments are premature. ... We agree with Interveners. ... The reform efforts have been the subject of extensive public review and comment and are nearing completion. Accordingly, we reject SDG&E's arguments at this time. =01&It is unclear whether SDG&E's failure to purchase hedging instruments for its retail operations is due to state regulatory policies or its business decisions. A retail rate design that exposes consumers to the volatility of commodity prices would be extraordinary, particularly when consumers do not have the ability to receive or respond to price signals. =01&We are concerned that ... increasing level of market activity in the real-time market raises significant reliability and economical concerns. ... Historically, the ISO procures on a daily basis only the resources needed for the operating day. Not only does this procurement practice put pressure on the grid operator to secure needed resources at the last minute, but the practice is uneconomical. Such spot-market purchases are not subject to the ISO's buyer's cap. Furthermore, because the ISO is the supplier of last resort for these services, when OOM calls are made, suppliers realize that the ISO is in a must-buy situation. =01&In an effort to address this problem, we direct the ISO to immediately institute a more forward approach to procuring the resources necessary to reliably operate the grid. Specifically, the ISO should anticipate the need for such additional resources based on forecasted peak periods. We direct the ISO to factor these reforms into an analysis of the need for and level of purchase price caps and to include this analysis as support for any filing it makes to extend its purchase price cap authority.=018 In closing, WPTF is an intervenor in the case, and we hope to be very active in the case through testimony, cross examination, the filing of briefs, and reply briefs. >>> Things in the People=01,s Republic of California @@@ The Development of a Super-Peak Block Energy Product Several weeks ago, I discussed with the ISO their interest in developing a new market for a block energy product that would be purchased in the morning of a trade day, and be dispatched during the super-peak hours. I challenged them to let the market participants develop this market instead of the ISO doing the same. At the August 1 ISO Governing Board meeting, I stated as the WPTF position that we oppose price caps, but if the ISO Governing Board insisted on going down the $250/MWH price cap route, we would do what ever we could to help the situation and avoid the occurrences of Stage 3 alerts. Whereas I didn=01,t think about the conversation on super-peak block markets as being relevant to the remarks before the Governing Board, it became painfully clear soon after that we could, and should work with the ISO to develop a new market through either APX or the California PX, or both, to bring some order to the otherwise chaotic Out of Market system. This week, WPTF and the ISO had a joint meeting whereby both sides discussed the merits of a super-peak block firm-energy product, and how it could be instituted. The meeting at the ISO, at which WPTF had many of its members who either have generation in the State, or import power into California, was for market participants and the ISO to discuss how to bring more order and price transparency to the ISO's out of market calls. The ISO reported that this summer, to date, the amount of money spent on Out of Market purchases was about $100 million. Last year the total cost of Out of Market purchases was $1.7 million. APX and CalPX, in response to our earlier discussions with them, presented their proposals at the meeting. The discussions which ensued during the course of the presentations focused on how the ISO might utilize a product/service to reduce the manpower requirements currently needed to satisfy its out of market telephone calls, typically on short notice, and the interest on the part of market participants to make bids into either the APX or CalPX's proposed system for a super-peak firm-energy product. There were no commitments made by any party, simply a willingness to work together to alleviate the problems associated with finding sufficient electric power during high demand periods with greater transparency, more participants, and greater market efficiency. We=01,ll keep you posted on our development of this market. >>> The Mailbag: A Letter from My Friend, and A Response Sometimes I share bites of our Burrito with fellow travellers, much as I did last week when I sent my friend Mike Florio a copy of the story called the Trial of Gow Jing. Mike sent me a note that I would like to share. He said I could. I want you to read it and appreciate that there are other people who share his view. I also copied the response I sent to Michael, a.k.a. Old Deuteronomy. Michael wrote: =01&I'm not going to attempt to complete your little melodrama [the Gow-Jing story], but I did want to offer an observation. In simpler times, people knew the other people that they did business with, and they typically lived in the same community. If a merchant tried to charge exorbitant prices for his products, even if he was the only one in town who had the product in stock, he would face the wrath of his fellow citizens. This undoubtedly served as a constraint on such behavior, even in the absence of a CPUC or FERC. Telling Mrs. Jones that the loaf of bread she needs to feed her kids will cost her $50 would not be a pleasant way to do business, and such things ordinarily did not happen. =01&In the modern global economy, of course, this personal aspect of doing business has been almost completely lost. And so has the restraint. I have no doubt that the folks who sell electricity are good people (jeez, I know many of them), but they work in an environment where the end results of their business decisions are invisible. If Mrs. Jones can't afford to run her refrigerator any more, that fact is at best dimly perceived, and if so it is viewed as cause for some sort of social program, not a reason why a merchant would alter his behavior. =01&This is clearly not a case of socialism versus capitalism, because both scenarios occur within the overall context of a capitalist system. But certainly something fundamental has changed, and not for the better in my view. Now everyone feels compelled to squeeze the last dollar out of every transaction-- their jobs may even depend upon it-- and no one is responsible for the end result. Is this the kind of world we want to live in??? =01&PUT THAT IN YOUR BURRITO AND SEE WHAT YOUR READERS SAY! YOU CAN EVEN BLAME ME, SO THAT YOU ARE NOT ACCUSED OF TURNING PINK IN YOUR MIDDLE AGE. Deut=018 Okay. It=01,s in the Burrito. And here is what I think. You allude to the change in a world that was once =01&more personal=018 and= is now institutional. You make the point that things are not better off if for no other reason then the lack of personal accountability. But I don=01,t think that in all cases the more personal world is lost. It is ever present, as I will argue below. Second, your group embraces the impersonal =01&efficiencies=018 when it is convenient. Finally and most importantly, where will your social-minded and like minded counterparts be when competitive forces leap supply ahead of demand, which might happen in a handful of years? However, your essential point is not lost on me. I do believe that there are ways for generators and consumers to be good neighbors in California. I have a proposal below to which I would like to hear your response. First, though, the personal business touch is present in our economy. I exercise the restraint to which your story pines in many of my consulting engagements which require financial give and take between client and vendor. It is simply smart business to do so. I have been the beneficiary of the same with my local bank when errors occurred in my checking accounts, or when loan payments were made absent mindedly late, etc., and the late fee forgiven. However, much of our economy, and certainly the trade of a commodity such as electricity requires the use of markets. Nameless and faceless, they do squeeze out all the efficiencies which lead to lower prices, more innovation, and a sharing of price risk with parties who are neither the ultimate consumer nor the initial producer. The producer and consumer get out of the risk arbitrage and leave it to others who are more skilled and monied. I find it ironic that TURN, then, is so insistent on arguing, as it has done on many many occasions for the relaxation of market separation in the ISO=01,s congestion management reform. Elimination of market separation is nothing more than the impersonal forcing of parties to execute trades on either side of a congested transmission path in the name of market efficiency. Lower prices for consumers. Does it really matter if it is done through person to person transactions, or through markets? Third, your story can be used to make an alternative point. What happens to the merchant in town when Wal-Mart moves into the next town down the road? All the faithful customers that your Merchant of Vengeance was protecting suddenly migrate to a competitor with greater inventory, more choice, and lower prices. What do you say, then? The corollary for us is direct. The new generation owners moved literally billions of dollars into California, at risk, and took a chance. It paid off. They succeeded as we all know this year, and probably will next year, and so on. But the 3,000 MW of new power plants under construction in California, and the 3,000 MW under construction in Arizona, and the over 16,000 MW of combined power projects in California, Arizona, and Southern Nevada that are in line for permits will change the financial landscape in a hurry once energized. The prices will soften, returns will be less cherry, and I really want to know, where will today=01,s accusers be when there is a shake out? Consumers will reap that benefit, oh you best believe it. But the alliances to which your opening story alludes simply misses that point. You gotta make hay while the sun shines. Now to my proposal. Michael, I would be willing to work with you to develop some kind of loan program for residential and small commercial customers that would, in effect, reduce the economic hardship of higher electricity prices. I could imagine, although I haven=01,t tested the idea with any parties, that a significant program could be crafted, possibly secured by the credit of participating generating companies, and executed by a commercial lending institution such as Bank of America. Borrowers would pay a fair interest rate and the administrative fees. It=01,s simply smart business, not charity. It=01,s one way to amortize th= e earnings which came about due to a circumstance of short supply relative to the sudden growth of demand for power. Maybe that is a step in the right direction, I don=01,t know. One could argue that it is no different than SDG&E implementing a level payment plan for it=01,s consumers. True, it is no different, because in either case the customer is paying for the loan interest and administrative fees, and I consistently believe that a market for credit is more efficient (am I getting impersonal?) than one instituted by a monopoly. Second, the security for these loans is provided by parties other than the utility=01,s customers. Further, we wouldn=01,t have to wor= ry about PUC oversight and prudence reviews. We could make this work quickly. I will be very interested to hear your thoughts, and the comments of my members. Thanks for sending us your letter. >>> Odds and Ends (_!_) @@@ Finish the Story Contest Well, there was only one response, and that was from Carl Imparato. Here is what Carl said, =01&Am I missing something? Who is Gow-Jing supposed to represent? (Yes, I get the pun in the name. But is he also just an anonymous "everyman" or is there someone in particular?) =01&My first response to your question is that Gow-Jing simply replies =01+Itai!=01, (You could look it up... I think it's Chinese for =01+it hurt= s!=01,). Then he takes out a concealed axe, goes on a rampage and kills everyone. But that's too realistic, so don't use that ending. Instead: =01&Ending: Just as he was about to reply, a giant 500 foot wall of water swept through the room, drowning everyone. And they lived happily ever after. The end." I haven=01,t decided whether to name this response Carl=01,s Gilgamesh Epic (I.e., Noah and the flood), or Carl=01,s Hydro Dream. We=01,ll leave the contest open for another week. Can=01,t let $5 bucks go the only entry. Where=01,s the competition? >>> Odds and Ends (_!_) @@@ October General Meeting Barb Ennis, our event coordinator for our General Meeting wanted you folks to know that the Inn at Morro Bay blocked a few more rooms for us on Wednesday, October 4th (for the early birds) and of course Thursday, October 5th. To date, 21 of the 24 rooms originally set aside in the WPTF block are now taken. Among the additional rooms, there are 2 rooms blocked with double beds on Wed. & Thur. nights at $152.00 each and 6 rooms on both nights for $89.00 each. Folks, you better call the Inn at Morro Bay, telephone 800-321-9566. Rooms should be requested under the name of the Western Power Trading Forum. Also feel free to call the Inn and book a room for Friday and Saturday if you wish to stay over....ask for SHAWN. For those who are in the golf, green fees are $28.00 plus $10.00 for the cart. Please RSVP me by E-Mail (baennis@ix.netcom.com) if you are attending The Social Evening Dinner On Thursday Night ($45 per person, all are invited) and also the luncheon on Friday (no charge) .... I must have an accurate headcount. Have a great weekend and see you at Morro Bay.......Barb >>> Odds and Ends (_!_) @@@ What Makes Houston, Houston? Dan Douglass of Arter and Hadden sent us the following item. Houston, the unofficial home of the electric power industry, is a town you either love or hate. Here are some guiding principles offered by the Chamber of Commerce of the 4th largest city to enable their many visitors to cope. =01=07 First you must learn to pronounce the city name. It is YEWS-TUN a= nd it does not matter how people pronounce it in other places. =01=07 Forget the traffic rules you learned elsewhere. Houston has its ow= n version of traffic rules. Never forget that downtown Houston is composed entirely of one way streets. The only way to get out of center of town is to turn around and start over when you reach Dallas, Texas. =01=07 All directions start with, "Go down Westheimer..." =01=07 Westheimer has no beginning and no end. =01=07 It's impossible to go around a block and wind up on the street yo= u started on. The Chamber of Commerce calls this a "scenic drive". =01=07 The 8am rush hour is from 6:30 to 9:30am. The 5:00 pm rush hour is from 3:30 to 6:30 pm. Friday's rush hour starts on Thursday morning. =01=07 If you actually stop at a yellow light, you cannot be from Houston= . =01=07 Kuykendahl Road can only be pronounced by a native, so do not attempt the phonetic pronunciation. People will simply tilt their heads to the right and stare at you. =01=07 Construction on the Gulf Freeway is a way of life, and a permanent form of entertainment. =01=07 Many bizarre sights can be explained simply by uttering the phrase= , " Oh, we're in Montrose!!" =01=07 Construction crews aren't doing their job properly unless they close down all lanes except one during rush hour. =01=07 If someone actually has their turn signal on, it was probably lef= t on at the factory where the car was made. =01=07 White haired men driving red or silver sports cars will not obey a= ny known traffic rule and cannot be expected to stop for red lights or stop signs. =01=07 All ladies with blue hair who drive Cadillacs or Lincoln Continentals have the right of way. =01=07 The above mentioned blue haired ladies also have a legal right to turn right from a left lane or to turn left from a right lane. YOU HAVE BEEN WARNED! =01=07 Buying a Houston street map is a waste of money since there is absolutely no way that you can route yourself in such a manner as to avoid major road construction. =01=07 Houston natives are so rare that they are listed on the endangered species list. The few remaining specimens are kept in a controlled environment for their own safety. =01=07 Sir" and "Ma'am" are used by the person speaking to you if there's= a remote possibility that you're at least 30 minutes older than they are. =01=07 "Sugar" is a more common form of address than "Miss". So is "Honey". Do not take offense. This is how southerners address grown women. =01=07 In Houston we drink Coca-Cola and Dr. Pepper. It is rumored that other soft drinks are sold here, but no one will admit to knowing anyone who actually drinks them. So don't ask for any other soft drink. =01=07 What you need to know when arriving at Bush Intercontinental Airport: Your arrival gate is at least 32 miles away from the Main Concourse of any terminal. Walking heels on your boots or walking shoes are advised. =01=07 Never honk your horn at another car in Houston traffic. The bumper sticker that reads, "Keep honking, I'm reloading" is considered fair warning. =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D Have a great weekend, y=01,all. gba