---------------------- Forwarded by Carla Hoffman/PDX/ECT on 11/29/2000 06:12 
AM ---------------------------
   
	Enron Capital & Trade Resources Corp.
	
	From:  "Pergher, Gunther" <Gunther.Pergher@dowjones.com>                      
     11/29/2000 06:05 AM
	

To: undisclosed-recipients:;
cc:  
Subject: FW: FYI two articles from Tuesday (in case you missed them)




> -----Original Message-----
> From: Golden, Mark
> Sent: Tuesday, November 28, 2000 6:56 PM
> To: Pergher, Gunther
> Subject: FYI two articles from Tuesday (in case you missed them)
>
> 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)
>