Message-ID: <11630583.1075858674478.JavaMail.evans@thyme> Date: Wed, 25 Jul 2001 09:29:52 -0700 (PDT) From: c..hall@enron.com To: b..sanders@enron.com Subject: CDWR unable to tie power costs to sales b/c it pools the power together as a portfolio. Cc: tim.belden@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable Bcc: tim.belden@enron.com X-From: Hall, Steve C. X-To: Sanders, Richard B. , 'gfergus@brobeck.com' X-cc: Belden, Tim X-bcc: X-Folder: \Sanders, Richard B (Non-Privileged)\Sanders, Richard B.\ISO/ Pricecaps X-Origin: Sanders-R X-FileName: Sanders, Richard B (Non-Privileged).pst Richard and Gary: I thought you both might be interested to learn that CDWR was unable to est= ablish the cost of power that it sold because it doesn't separately track t= he purchase price and sales price for each megawatt. It seems unreasonable= for the State to be insisting that marketers produce costs for power sold = to California when the State does not or cannot track that data for its own= power purchases and sales. I underlined the relevant passages in the LA = Times and San Jose Mercury Stories below. Regards, Steve -------------------- Surplus Power Sold at a Loss -------------------- Electricity: Cool summer and effective conservation efforts result in exces= s supplies. Industry officials say it's a routine move. By NANCY VOGEL TIMES STAFF WRITER July 24 2001 SACRAMENTO -- Caught with an excess of electricity as a result of cool weat= her and heavy conservation, the state government sold power at a loss appro= aching $14 million in the first 16 days of July. The loss amounts to roughly 3.5% of the total amount the state spent on pow= er during that period. To keep power flowing to 27 million Californians, the state purchased 3.5 m= illion megawatt-hours at an average price of $118 per megawatt-hour, accord= ing to the state Department of Water Resources. It sold off 177,000 surplus= megawatt-hours at an average price of $36.95 per megawatt-hour. Department= of Water Resources Director Thomas Hannigan disclosed the details in respo= nse to an inquiry by Assemblyman John Campbell (R-Irvine). The sales of surplus power "get to the issue of, do these people really kno= w what they're doing? Are they really competent to be managing this to the = lowest cost for the ratepayers?" Campbell said. "It reinforces to me that w= e should get the state out of doing this as soon as practically possible." Industry officials, however, say it is routine for utilities and electricit= y companies to at times find themselves with more electricity than their cu= stomers need. They either sell the power at a loss, work out an exchange of= power or give it away. "It's not all that uncommon for utilities to be buying one day and selling = the next," said one Pacific Northwest trader who asked not to be identified= because his company does not permit him to talk to reporters. He said a ru= le of thumb in the industry is to match supply to demand within 1% to 2%, a= lthough "5% on a load like California isn't that much." Assemblyman Roderick Wright (D-Los Angeles), chairman of the Assembly utili= ties committee, said he did not see a problem with DWR's power sales. "Right now the summer is cool," he said. "If this had been a normal July, w= e would have used all that power." "The worm could have turned the other way." Department of Water Resources spokesman Oscar Hidalgo said the state's crew= of 15 power purchasers found themselves selling a "very minimal" amount of= electricity in May. In June, more power was sold, but less than was sold i= n July, he said. The department has not released those figures. Department officials expect the sales to stop if temperatures heat up later= this week. The water department was thrust into the role of buying 30% to 50% of the s= tate's overall electricity in January after the state's major utilities bec= ame so financially crippled by high wholesale electricity prices that energ= y companies refused to sell to them. The department has so far spent roughly $8 billion of taxpayer money purcha= sing power that is sent to the customers of Pacific Gas & Electric, Souther= n California Edison and San Diego Gas & Electric. Hidalgo said the sales show that the water department has stabilized the st= ate's electricity market. The average price the department has paid for a m= egawatt-hour is falling, from $271 in May to $119 in June to $89 so far in = July. "If we were out scrambling for power right now," Hidalgo said, "the market = would reflect that and adjust to it, and we would most likely be paying muc= h more in overall purchases." Campbell said he assumes the department sold its most expensive, marginal m= egawatts of power. But Hidalgo said that is not necessarily so. The departm= ent does not track what it paid for the power it sells, he said. The department's statement to Campbell shows sales to 25 different companie= s, including the federal Bonneville Power Administration, the Los Angeles D= epartment of Water and Power, and several private energy companies that bou= ght power plants from California's utilities under the state's 1996 deregul= ation scheme. Those firms include Dynegy Corp., Reliant Energy, Mirant Corp= . and Duke Energy. Copyright 2001, Los Angeles Times =09 Figures show state lost big on extra power Posted at 9:53 p.m. PDT = Monday, July 23, 2001 BY JOHN WOOLFOLK Mercury News State figures sho= w California may have lost about $14 million this month selling surplus ele= ctricity for less than it cost. The Mercury News disclosed last week that = some power was being sold at a loss. But the new figures provide the first = indication of just how much excess power the state bought in its desperate = effort to avoid blackouts -- and how cheaply some of that power was sold wh= en it turned out not to be needed. A Republican lawmaker said Monday the l= oss also shows Democratic Gov. Gray Davis' energy policies are needlessly c= osting consumers. ``This whole thing is a mess,'' said Assemblyman John Ca= mpbell, R-Irvine, who requested details of the state's surplus power sales.= ``The government needs to get out of the power business before it costs Ca= lifornians even more money.'' A state spokesman didn't dispute the $14 mil= lion figure outright but said it is an approximation based on average price= s and that the actual loss probably is less. ``It's a number I'm sure he l= ikes very much, but it's definitely an estimated number, and it could be fa= r lower,'' said Oscar Hidalgo, spokesman for the state Department of Water = Resources. Campbell responded that the loss also could be higher. The sta= te has spent $415 million on power so far this month. State officials last= week confirmed that cool weather and consumer conservation have left Calif= ornia holding more power than it needs. The revelation was a stunning turna= round for a state that months ago was paying top dollar for power, expectin= g shortages this summer. Price that was paid The state bought 3.5 million= megawatt-hours of electricity for July at an average price of $118 per meg= awatt-hour, according to a response Friday by the Department of Water Resou= rces to Campbell's inquiry. The state has sold 178,000 surplus megawatt-hou= rs in July at an average price of $37, the department said. Based on those= average prices, the state paid $21 million for the surplus power, which it= sold for $6.5 million -- $14.5 million less than it cost. A more precise = calculation of the state's loss is difficult because purchased power is acq= uired at different times and prices and pooled as a ``portfolio.'' Purchas= es included long-term contracts that averaged $138 per megawatt-hour as wel= l as cheaper spot-market buys. State officials last week said they were se= lling surplus at $15 to $30 a megawatt-hour, while some traders cited uncon= firmed sales as low as $1. Hidalgo noted that the surplus sales represent = just 5 percent of California's July purchases, which totaled $415 million. = The $6.5 million from sales will help lower the state's power bill, he said= , adding that utilities routinely sell some extra electricity. ``Despite t= he fact that we're in somewhat of a surplus, any power-buying operation in = the world is going to have to plan for these types of situations,'' Hidalgo= said. ``It's not unique, and in fact it's normal operating procedure for a= ny utility.'' Other Western utilities, including Portland General Electric= in Oregon, have said they, too, are selling some surplus power at a loss a= nd describe it as a cost of doing business. The suppliers buying the state= 's surplus electricity on the cheap include the big out-of-state energy com= panies that the governor has called price-gouging ``snakes.'' Among them ar= e Duke Energy, Dynegy Power and Marketing, El Paso Power Services, Mirant, = Reliant Energy and Williams Energy. `Best bid' taken Hidalgo said the sta= te took the best offers it could find. ``It's only reasonable to get the b= est bid you can,'' he said. Campbell said the $14 million loss is troublin= g because ratepayers or taxpayers will have to cover the cost, whereas a pr= ivate utility could be forced to eat the expense if regulators determined i= t was unreasonable. State officials say what's more important is that the = overall cost of power is dropping, from an average daily tab of $64 million= in May to $25 million this month, in part because the state has so much po= wer. Contact John Woolfolk at jwoolfolk@sjmercury.com or (408) 278-3410. # # #=09=09 =20