Message-ID: <9516992.1075842463850.JavaMail.evans@thyme> Date: Wed, 1 Nov 2000 02:19:00 -0800 (PST) From: lorna.brennan@enron.com To: julie.mccoy@enron.com, steve.klimesh@enron.com, gary.sova@enron.com, rob.wilson@enron.com, lon.stanton@enron.com, david.marye@enron.com, courtney.barker@enron.com, sarabeth.smith@enron.com, keith.petersen@enron.com, michele.winckowski@enron.com, donna.martens@enron.com, josie.call@enron.com, bret.fritch@enron.com, donald.vignaroli@enron.com, john.goodpasture@enron.com, michael.ratner@enron.com, sebastian.corbacho@enron.com, yuan.tian@enron.com, rockey.storie@enron.com, kent.miller@enron.com, john.dushinske@enron.com, dave.neubauer@enron.com, bill.fowler@enron.com, michael.bodnar@enron.com, joni.bollinger@enron.com, david.badura@enron.com, janet.bowers@enron.com, craig.buehler@enron.com, bob.burleson@enron.com, allen.cohrs@enron.com, john.fiscus@enron.com, steve.gilbert@enron.com, morgan.gottsponer@enron.com, stephen.herber@enron.com, dana.jones@enron.com, stephanie.korbelik@enron.com, bill.mangels@enron.com, penny.mccarran@enron.com, vernon.mercaldo@enron.com, larry.pavlou@enron.com, eileen.peebles@enron.com, tony.perry@enron.com, loren.penkava@enron.com, ken.powers@enron.com, chris.sebesta@enron.com, frank.semin@enron.com, neal.shaw@enron.com, larry.swett@enron.com, kay.threet@enron.com, mike.ullom@enron.com, lisa.valley@enron.com, chuck.wilkinson@enron.com, jim.wiltfong@enron.com, jo.williams@enron.com, karen.lagerstrom@enron.com, bob.stevens@enron.com, sue.neville@enron.com, mike.barry@enron.com, martha.janousek@enron.com, kimberly.watson@enron.com, don.powell@enron.com, steve.weller@enron.com, michael.stage@enron.com, tim.johanson@enron.com, laura.lantefield@enron.com, frank.oldenhuis@enron.com, jeff.nielsen@enron.com, tracy.schwartzkopf@enron.com, robert.mason@enron.com, sean.bolks@enron.com, miriam.martinez@enron.com, lee.ferrell@enron.com, john.williams@enron.com, reyna.cabrera@enron.com, theresa.branney@enron.com, mary.miller@enron.com, michel.nelson@enron.com, mike.mcgowan@enron.com, julia.white@enron.com, drew.fossum@enron.com, steven.harris@enron.com, jeffery.fawcett@enron.com, lorraine.lindberg@enron.com, kevin.hyatt@enron.com, christine.stokes@enron.com, tk.lohman@enron.com, michelle.lokay@enron.com, lindy.donoho@enron.com Subject: Lay's Comments to FERC on Power Market Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Lorna Brennan X-To: Julie McCoy, Steve Klimesh, Gary Sova, Rob Wilson, Lon Stanton, David Marye, Courtney Barker, Sarabeth Smith, Keith Petersen, Michele Winckowski, Donna Martens, Josie Call, Bret Fritch, Donald Vignaroli, John Goodpasture, Michael Ratner, Sebastian Corbacho, Yuan Tian, Rockey Storie, Kent Miller, John Dushinske, Dave Neubauer, Bill Fowler, Michael Bodnar, Joni Bollinger, David Badura, Janet Bowers, Craig Buehler, Bob Burleson, Allen Cohrs, John Fiscus, Steve Gilbert, Morgan Gottsponer, Stephen Herber, Dana Jones, Stephanie Korbelik, Bill Mangels, Penny McCarran, Vernon Mercaldo, Larry Pavlou, Eileen Peebles, Tony Perry, Loren Penkava, Ken Powers, Chris Sebesta, Frank Semin, Neal Shaw, Larry Swett, Kay Threet, Mike Ullom, Lisa Valley, Chuck Wilkinson, Jim Wiltfong, Jo Williams, Karen Lagerstrom, Bob Stevens, Sue M Neville, Mike Barry, Martha Janousek, Kimberly Watson, Don Powell, Steve Weller, Michael G Stage, Tim Johanson, Laura Lantefield, Frank Oldenhuis, Jeff Nielsen, Tracy Schwartzkopf, Robert Mason, Sean Bolks, Miriam Martinez, Lee Ferrell, John Williams, Reyna Cabrera, Theresa Branney, Mary Kay Miller, Michel Nelson, Mike McGowan, Julia White, Drew Fossum, Steven Harris, Jeffery Fawcett, Lorraine Lindberg, Kevin Hyatt, Christine Stokes, TK Lohman, Michelle Lokay, Lindy Donoho X-cc: X-bcc: X-Folder: \Drew_Fossum_Dec2000_June2001_1\Notes Folders\Discussion threads X-Origin: FOSSUM-D X-FileName: dfossum.nsf Note: The FERC meeting is today. See the link below that can be checked for updates. Enron's Lay Urges Bold Solutions to Power Market Woes As the Federal Energy Regulatory Commission prepared to weigh in this morning with the federal government's answer to California's be-deviled power market, free market advocates issued last minute warnings against taking the price cap route espoused by the Cal-ISO. FERC's meeting is scheduled to start at 9 AM EST. (Check http://intelligencepress.com this morning for updates) In a letter fired off to FERC Chairman James J. Hoecker yesterday, Enron CEO Kenneth Lay urged the Commission to find a fix for the underlying structural problems in the power market rather than follow the steps of policy makers who have placed "price cap 'band aids' over hemorrhaging wounds." Lay told Hoecker the power market is "halfway across a busy street in its transition from monopoly to competition. It can't stand where it is." He said FERC has to make a choice between falling into the "same trap of political expediency as California's ISO, leaving the nation's electric system in the lurch from one crisis to the next, [o]r it can take a big step toward fundamental structural reform." At the same time the Electric Power Supply Association (EPSA) called on FERC to issue an emergency cease and desist order prohibiting the Cal-ISO from "unilaterally implementing" any changes to its current $250/MWh price cap for wholesale electricity purchases. In a motion filed Monday, the marketer group specifically asked the Commission to bar the Cal-ISO board of directors from putting into effect its decision to impose a fiendishly complex load-differentiated price cap of $100 or less during the off-peak season effective Nov. 3. The plan was designed by the state's main utility consumer group (see Daily GPI, Oct. 30). In addition, the EPSA urged FERC to "state explicitly" that the Cal-ISO does not have the authority to impose or extend price or bid caps, unless expressly authorized to do so by the Commission. The Cal-ISO's current authority to set price caps expires on Nov. 15. Lay said the Cal-ISO's complicated new formula caps prices below the cost of gas-fired generation, "making obvious errors such as failing to take into account gas transportation costs between the Henry Hub and power plants in California; in doing so the bid cap makes it more economic for generators to sell their gas supply, rather than use it to make electricity in California." The new formula also forces the ISO into the market to buy power on an ad hoc basis "to keep the lights on when the capped market fails to attract sufficient supplies (which it inevitably will do)," Lay said. In addition, the capped formula "invites generators to shut in production, export power out of state and deploy their turbines in other states or countries." He noted that the ISO's Chairman voted against the measure while all of the state's utilities voted for it "presumably knowing full well that it simply will not work." California is "just the latest failure of partial or compromised open access," said Lay. "It's time for the Commission to reject this approach. "The power industry --- the nation's most essential industry --- is mired in the transition from regulated monopoly to open access and customer choice. Every step forward has been compromised out of concern for alienating one vested interest or another. As a result, utilities are free to slow the interconnection of new generation, withhold equal access to the transmission system, favor their own sales over those of competitors, miscalculated available transmission capacity, and exercise control over supposedly 'independent' system operators and reliability organizations. Lay predicted that installing price caps for political expediency would "plunge markets into greater uncertainty and discourage new supplies and conservation methods..." FERC has to complete the work that it started, said Lay. It has to ensure that all parties have equal and fair access to transmission by "ending the special priority for utility uses of the system. Second, FERC must require transmission owners to separate operation of the monopoly transmission assets from their other businesses. Third, FERC must take politics out of transmission system operations by revising governance structures to ensure independence. Finally, FERC must end its reliance on shortsighted price caps by putting in place the necessary reforms to allow these markets to operate efficiently to encourage conservation and attract new supplies." EPSA said the Cal-ISO board "acted in obvious disregard for the Commission's orderly processes." It "cannot be permitted to make the Commission's decisions for it, or to alter so radically market rules, thereby injecting more uncertainty and confusion in the market and subverting the process for fashioning fair, effective and comprehensive remedies" for California's "flawed" electric markets, the group noted. The EPSA believes that any remedial actions taken by FERC with respect to the California markets will be "severely compromised" if the Cal-ISO board's imposition of new prices caps is allowed to take effect. ------------------------------------------------------------------------------ --