California's Price Caps Raising Average Cost of Power 
The retail price caps imposed in California are leading to higher average 
prices for longer periods of time as demand responsiveness is dulled and 
supply is retarded, according to a report released by Morgan Stanley Dean 
Witter. Traders interviewed by the firm said that calendar strips for 2001 
through 2003 have traded in excess of $100/MWh, or around $30/MWh higher than 
a month ago. What's more, the firm said, the expected trough in the forward 
curve * projected in the 2002-2003 time frame * "continues to move out in 
time." 

The Dean Witter study reported that the change in futures pricing for the 
California Oregon Border (a proxy for Northern California pricing) and at 
Palo Verde (a proxy for Southern California pricing) trading hubs show 
similar upward trends from June through August. 

The study said the most alarming thing for the state is the increased threat 
of power outages. Higher priced regions like the desert Southwest and the 
Northwest "will suck exports out of the state and deter imports," Dean Witter 
said. The tight supply situation is pushing average prices higher, more 
often, and increasing the risk imports won't arrive at all when they are 
truly needed.