Jeff, can  we get a copy of the PX study?  Thanks
----- Forwarded by Aleck Dadson/TOR/ECT on 11/29/2000 10:23 AM -----

	Barry Conway <conway@enerconnect.com>
	11/29/2000 10:18 AM
		 
		 To: "'schuchco@oeb.gov.on.ca'" <schuchco@oeb.gov.on.ca>
		 cc: 
		 Subject: FYI two articles from Tuesday (in case you missed them)


Colin: FYI.   Two interesting DJ news articles.  The first article is
all about what happens when you mess in trying to regulate competitive
markets (even with good intentions), the second article is dead on about
the real problem with standard supply there, and here.    Barry

Barry Conway
Chief Operating Officer
ENERconnect
Telephone:  416-483-7362
Fax:  416-483-1546
Email: conway@enerconnect.com

> >
> > FERC Unclear On Pay For Must-Run Units, Capital Return
> >    By Jason Leopold and Mark Golden
> >    OF DOW JONES NEWSWIRES
> >
> >   NEW YORK (Dow Jones)--The U.S. Federal Energy Regulatory
> Commission,
> > which is
> > working on its final order to fix California's broken electricity
> market,
> > isn't
> > clear on how the new rules will price power from must-run generators
> or
> > how
> > generators will be paid a return on their capital investments, a
> FERC
> > commissioner said Tuesday.
> >   In its preliminary proposal Nov. 1, FERC said that  California's
> > wholesale
> > electricity market price could have a "soft cap" of $150 a
> megawatt-hour,
> > but
> > the state could purchase additional power at more than $150/MWh if
> needed.
> > Suppliers would be paid the price at which they bid in their power
> would
> > have to
> > justify why their costs exceed $150/MWh. Further, the FERC could
> lower the
> > sales
> > price upon review.
> >   As reported Monday, FERC commissioners likely will set the "soft
> cap" at
> > $100/MWh in the final ruling, which is expected in the middle of
> December,
> > instead of the initially proposed $150/MWh.
> >   The FERC, however, still doesn't know how generators selling power
> above
> > the
> > cap will be reimbursed for investment in addition to marginal
> generating
> > costs.
> > When generators are paid only their marginal costs, they have no
> money
> > left to
> > pay off fixed costs and go broke. Fixed-cost recovery as a
> percentage of
> > per
> > megawatt-hour sales price varies widely based on how many hours a
> year a
> > generator operates. Inefficient peaking units that run only a couple
> > hundred
> > hours a year, for example, need to be paid very high prices per hour
> to
> > cover
> > fixed costs.
> >   In addition, the state has contracts with several independent
> power
> > producers
> > whose generators must run - or at least be available to run - all
> the time
> > for
> > system reliability. Currently, these "resource must-run" units get
> paid
> > the
> > market clearing price, but a clearing price of $100/MWh won't cover
> the
> > fixed
> > costs of gas-fired units at current prices for natural gas in
> California.
> >   "We're not clear on these issues, and we're seeking comments on
> them,"
> > said
> > the commissioner, who spoke on the condition of anonymity.
> >   Others in the industry are also skeptical about how the new "soft
> cap"
> > will
> > work.
> >   "I don't think the FERC knows what it's getting itself into. Maybe
> they
> > will
> > just take all these documents and sit on them for years, and never
> change
> > the
> > prices," Dynegy (DYN) Marketing & Trade senior vice president, Lynn
> > Lednicky
> > said Tuesday while attending a CalPX conference in New York City.
> >   -By Jason Leopold and Mark Golden, Dow Jones Newswires;
> 201-938-4604;
> > mark.golden@dowjones.com
> >
> >   (END) Dow Jones Newswires  28-11-00
> >   2333GMT(AP-DJ-11-28-00 2333GMT)
> >
> >
> > Cal PX Panel: Building Forward Market Key To Power Woes
> >     By Mark Golden
> >    Of DOW JONES NEWSWIRES
> >
> >   NEW YORK (Dow Jones)--A panel of market economists assembled by
> the
> > California
> > Power Exchange debated Tuesday whether the CalPX should move from a
> > single-price
> > auction for pricing electricity in the spot market to an "as-bid"
> market,
> > which
> > the U.S. Federal Energy Regulatory Commission has proposed.
> >   The consensus, however, was that moving purchases out of the spot
> market
> > into
> > a forward market is more important to solving California's
> electricity
> > crisis,
> > and that if a forward market develops, the pricing mechanism of the
> CalPX
> > spot
> > market won't be that important.
> >   "Dynegy favors an as-bid market, but it's not a matter of religion
> for
> > us,"
> > Dynegy (DYN) Marketing and Trade senior vice president, Lynn
> Lednicky,
> > told the
> > economists.
> >   "If I could wave a magic wand and create a forward market for
> > California, I
> > wouldn't get all excited about whether the spot market is
> single-price or
> > as-bid," Lednicky said.
> >   Under its current single-price auction, the CalPX pays all
> suppliers the
> > price
> > for the last, most expensive megawatt taken for a given hour the
> next day.
> > In
> > the FERC proposed as-bid market, suppliers whose energy is taken
> would get
> > paid
> > only the price at which they offered to sell their electricity to
> the
> > states'
> > three main utilities.
> >   The economists agreed that California legislators and regulators
> erred
> > gravely
> > in prohibiting utilities from entering into long-term forward
> contracts
> > with
> > suppliers when they began to deregulate the industry in 1996.
> >   "What were they thinking? Were they thinking at all?" asked
> University
> > of
> > Maryland professor Peter Crampton.
> >   Even though California utilities are no longer prohibited from
> > participating
> > in the spot market in general, the California Public Utilities
> Commission
> > still
> > hasn't approved any forward market contracts put before them by
> utilities
> > that
> > have reached agreements with suppliers, Lednicky said.
> >   Crampton, nevertheless, thinks that keeping the single-price
> auction
> > would
> > help promote a forward market. Single-price auctions are more
> volatile
> > than
> > as-bid markets, Crampton said, and forward markets are used more
> when spot
> > markets are more volatile. In addition, the single-price mechanism
> should
> > be
> > kept because an as-bid market is a disadvantage to smaller
> generators, who
> > would
> > have to spend a lot of resources relative to their size constantly
> > figuring out
> > how to bid in their power, Crampton said.
> >   When asked, Lednicky agreed that the FERC proposal, which was
> issued
> > Nov. 1
> > and will result in a final order around the middle of December,
> isn't
> > really an
> > as-bid market anyway. FERC said that the clearing price could be
> capped at
> > $150
> > a megawatt-hour and that the CalPX could purchase additional power
> at more
> > than
> > $150/MWh as-bid, but suppliers would have to justify their prices by
> > documenting
> > costs, and the FERC could lower the sales price after the fact. As
> > reported
> > Monday by Dow Jones Newswires, FERC likely will set the "soft cap"
> at
> > $100/MWh
> > instead of $150/MWh in the final ruling.
> >   Also, FERC would have to decide how more expensive generating
> plants
> > would be
> > reimbursed for investment in addition to marginal costs. Investment
> > recovery as
> > a percentage of sales price varies widely based on how many hours a
> year a
> > generator operates.
> >   "I don't think the FERC knows what it's getting itself into. Maybe
> they
> > will
> > just take all these documents and sit on them for years, and never
> change
> > the
> > prices," Lednicky said.
> >   The panelists and other participants Tuesday seemed to agree that
> an
> > as-bid
> > pricing mechanism probably won't lower prices that much over the
> long
> > term, but
> > it may lower prices significantly in the short run. They also agreed
> that
> > the
> > constant changing of market rules and the regulatory environment in
> > California
> > is a disincentive to investment in building new power plants in and
> around
> > the
> > state.
> >   By Mark Golden, Dow Jones Newswires; 201-938-4604;
> > mark.golden@dowjones.com
> >
> >   (END) Dow Jones Newswires  28-11-00
> >   2159GMT(AP-DJ-11-28-00 2159GMT)
> >