Message-ID: <3118947.1075851632373.JavaMail.evans@thyme> Date: Fri, 6 Jul 2001 22:16:00 -0700 (PDT) From: jeff.dasovich@enron.com To: mikahl@ka-pow.com, brbarkovich@earthlink.net, vjw@cleanpower.org, cohnap@sce.com, fieldejr@sce.com, schoongl@sce.com, jdasovic@enron.com, drothrock@cmta.com, kmccrea@sablaw.com, dhunter@s-k-w.com Subject: POWER POINTS:Nevada Suffers FERC Unintended Consequences Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Jeff Dasovich X-To: Mike Kahl (E-mail) , Barbara Barkovich (E-mail) , John White (E-mail) , Ann Cohn (E-mail) , John Fielder (E-mail) , Gary Schoonyan (E-mail) , Jeff Dasovich (E-mail) , Dorothy Rothrock (E-mail) , Keith McCrea (E-mail) , dhunter X-cc: X-bcc: X-Folder: \Dasovich, Jeff (Non-Privileged)\Dasovich, Jeff\Sent Items X-Origin: DASOVICH-J X-FileName: Dasovich, Jeff (Non-Privileged).pst ----- Forwarded by Jeff Dasovich/NA/Enron on 07/06/2001 07:15 PM ----- > POWER POINTS:Nevada Suffers FERC Unintended Consequences > > By Mark Golden > A Dow Jones Newswires Column > > NEW YORK (Dow Jones)--Those who have opposed wholesale electricity price > controls have been labeled as extreme free-market ideologues who are > insensitive > to the practical impacts on peoples' lives of high electricity prices. > But the most common argument against price caps has been logical, not > ideological: Price controls have never worked. Market participants always > find a > way around the rules. > This week the Federal Energy Regulatory Commission decided that it will > have > to consider at its meeting next week revisions to its June 19 price > control > ruling. The initial price cap rule, set by the California Independent > System > Operator last spring, was only a few paragraphs long. Each successive > price cap > order has gotten longer, though effectiveness still appears out of reach. > The > FERC's April order was 28 pages long; the June order was 48 pages. And now > additional rules are on call to plug the new loopholes. > The revisions will also try to repair damage done to the market by the > June > order. During a spell of very hot weather Monday, Sierra Pacific Resources > (SRP) > subsidiary Nevada Power had to initiate limited rolling blackouts to a > small > number of customers for 45 minutes. The company attributed the blackouts, > in > part, to the new price controls. > Sierra Pacific's chief spokesman, Paul Heagen, provided a bird's eye > view of > the practical realities of the FERC's new price cap regime. > Power Points: After having a few days to look into it, can you say that > price > caps definitely contributed to blackouts in Nevada on Monday? > Paul Heagen: Yes, but first let me say that all of it was unintentional. > FERC > was trying to do the right thing. Price caps were a noble effort to solve > a real > problem in California. > But on Monday the market needed speed and clarity to function. It had > neither, > and that can be attributed to the price caps. Normally, in one or two > phone > calls we could have got what we needed. On Monday, we were five to six > calls > into it and still on the phone. > Price caps are having the unintended consequence of dragging other > states into > the California morass. We have this artificial environment which we are > all > trying to sort through. > PP: How, specifically, are the caps having this effect? > PH: There are a couple of elements. The 10% premium for power sold to > California is supposed to reflect concerns about credit. That 10% in an > open > market is no big deal, but in a constrained situation the seller will grab > it, > because now it's his only chance to make money. > Also, the way this is set up, they look backwards. They determine the > price > after the fact. I can't think of any business in the world where you sell > a > product and find out later what price you sold at. > This had a very chilling effect on people's willingness to sell. > Normally, a > cloud cover comes in and a utility has a little extra power to sell in the > real-time market. Normally, those little 50-megawatt packets move pretty > easily, > and that's really important for maintaining reliability. > With the price cap, utilities hunkered down. Selling at $92 wasn't worth > the > risk. They figured they might as well hang on in case they needed it. > Also, we have a voluntary curtailment program that allows us to share > savings > with customers who agree to curtail use. If the market is, say, $500, we > might > pay them $250/MWh to curtail demand. But in a $92/mkt, we can offer them > such a > small amount of money that they stay on. > PP: Have you talked to FERC about these problems with the price > controls? > PH: We've had a senior team in Washington, D.C., at the FERC since last > week. > Right away we saw another effect of the FERC order: It penalizes companies > like > ours that signed long-term supply contracts before the order because many > of > those deals were done at prices above the price cap. > The biggest issue for us, is, did FERC really mean to penalize companies > like > us that planned ahead? It's long-term contracts that provide price > stability. > It's unfair to our customers to expect them to pay for long-term > contracts > that have been undercut by price caps. If we get into a situation where we > have > a little extra to sell, now we can't recover our costs. > PP: With such high prices the past year, a lot of small, oil-fired > turbines > have been dusted off and put into service on time for this summer. Traders > for > other southwest utilities have said that all these little turbines have > been > very helpful when supplies got tight earlier in the year, but they weren't > available this week because they cost more to run than the price cap. Did > you > see the same thing? > PH: We have some small turbines that we put in Reno and the Lake Tahoe > area in > the last few months. They were supposed to provide peak power, but they > get > uneconomic in a hurry under the price cap scheme. > You know, we've tried to isolate ourselves as best we could from the > California situation and behave very independent of how California > behaves. So > Nevada is a great test case to see if price caps have an unintended effect > outside of California. We were able to minimize the impact on our > customers > Monday, but the situation has maximized the attention of the country on > the > impact of price caps. > -By Mark Golden, Dow Jones Newswires; 201-938-4604; > mark.golden@dowjones.com > > (END) DOW JONES NEWS 07-06-01 > 03:14 PM- - 03 14 PM EDT 07-06-01 >