Alan/Jeff:

Just in case you haven't seen it, there is a new paper out from someone at
Berkeley (Steven Puller?) on California market power issues. It seems to
make some pretty strong statements re: market power over the previous years.
If you haven't seen it let me know and I can email you a .pdf version.

All the best,



Seab






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Seabron Adamson
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-----Original Message-----
From: Alan.Comnes@enron.com [mailto:Alan.Comnes@enron.com]
Sent: Thursday, November 23, 2000 8:55 PM
To: James.D.Steffes@enron.com
Cc: Mary.Hain@enron.com; Joe.Hartsoe@enron.com; smara@enron.com;
Jeff.Dasovich@enron.com; Paul.Kaufman@enron.com;
Sarah.Novosel@enron.com; rcarroll@bracepatt.com;
tim.heizenrader@enron.com; tim.belden@enron.com; bob.badeer@enron.com;
Seabron.Adamson@frontier-economics.com;
Sabine.Schnittger@frontier-economics.com
Subject: Emprical Study on High Prices



Attached is a paper that was filed at the FERC by Paul Joskow and Ed Kahn.
I assume it was attached to SCE's comments in the FERC price caps
proceeding.

This study appears to be the most definite analysis so far of the question:
did market fundamentals or generator market power cause the price run-ups
this summer?  Joskow/Kahn conclude that although much of the run up was due
to gas prices and NOx costs, that the market was unworkably competitive;
i.e., the cost run ups do not fully explain the price run ups.  Further,
they provide what they claim is evidence that individual generators
withheld this summer.

Joskow/Kahn state: "Moreover, there is considerable empirical
evidence to support a presumption that the high prices experienced in the
summer of
2000 were the product of deliberate actions on the part of generators or
marketers
controlling the dispatch of generating capacity to withhold supply and
increase market
prices."  Biggest withholders in their analysis are: AES/Williams, Reliant,
and Dynegy

Marketer/traders are largely but not completely spared criticism in their
analysis.  Joskow/Kahn recommend that FERC staff undertake a study of the
entire WSCC data to "Determine the role of marketers in the production and
bidding behavior of the California generators." and to find out more why CA
imports fell.

It will be interesting to see how the CA generators react to this study.

My initial read is that this is will be received as an important,
influential work.  It will fuel the fire for more information release,
especially by the UDCs and CA regulators--at least release of physical
operational data.

I would be interested in your reaction to the study.  In terms of potential
criticisms: I noticed that their gas prices might be low (used monthly
average data rather than daily).  They also did not account for generator
marginal profit or margin recovery to account for possible outages and
noncontiguous schedules.   Finally, they do not examine the benefits that
would have accrued had additional capacity come on line.

Alan Comnes

(See attached file: Joskow Kahn Paper 11_21.pdf)