THE FRIDAY BURRITO 

"If you think nobody cares, try missing a couple of payments." 

The bigger the missed payment, the more they care.? And how we Californians 
care about the potentially biggest missed payment of the Century (Hey, I can 
say that now and be telling the truth.).? John Yurkanin, COO of the PX was 
telling me at the end of our phone conversation yesterday, "You know, Gary, 
you might be the only friend I have left anymore."? I informed John that if 
my friendship was so prized, then he was in big trouble.?? A situation like 
that rates 3.4 TPCs (Totally Pathetic Circumstance).? But, hey, John, stick 
with me, don't worry about a thing.? We're going to get through this. 

Now, let's take an inventory of this week's crises.? There is the electric 
shortage crisis.? We entered the Stage 3 Alert zone Thursday afternoon, and 
early this morning. There is the natural gas pay-as-you-burn crisis.? Most of 
you natural gas sellers have determined that PG&E might not be the secured 
buyer they once were.? There is the cash crisis. Our two major utilities have 
no liquid funds to pay their energy bills.? Mush all three crises together, 
and you get a new word ( E-gash!? Like our State Motto, Eureka, which means " 
I have found it", we can exclaim "E-gash.? I'm Screwed." 

And everyone is starting to feel some of the pain.? The ESPs, or what remains 
of that class of market participants, were informed by PG&E that the payment 
of the PX credit for the direct-access customer bills the ESPs are due under 
consolidated billing are henceforth suspended.? The rate freeze ended last 
August, so, the logic goes, PG&E doesn't need to acknowledge the PX credit.? 
That puts a serious breach of contract kink in the ESP/Utility relationship.? 
Of course, who is going to write about hundreds of millions of dollars of 
short payments when you can write about billions of dollars of short 
payments.? I mean, who cares about the financial well being of the remaining 
competitors to the UDC's.? Let them fold their tent.? California customers 
don't want a choice of energy provider, do they? I don't know.? It's getting 
too easy to be cynical. 

Commissioner Carl Wood also handed out a couple of late Christmas gifts.? He 
ruled that QFs under Standard Offer Contracts could at most be paid 
$67.45/MWH, regardless of the SO formula for energy payment.? The QFs have to 
buy winter-time natural gas at market prices, and their production costs are 
easily in the range of +$200/MWH. What a great idea.? Force 2,500 MW, or so, 
of remaining SO-QF capacity to voluntarily shut down at a time when that 
capacity is so desperately needed. 

I know I have been picking on Mr. Wood a lot.? This week we served on the 
same FM radio talk show, KQED's Forum.? I hate to admit this, but Carl is 
really a nice person.? I don't like disagreeing with people who are basically 
decent. That's is why I would rather gently tease people like Mike Florio 
rather than out-and-out disagree with him.?? I figure that deep inside these 
misguided souls there is a crossed wire that gives them the wrong answer to 
every major policy question.? Carl and I started talking about good places to 
get corned beef sandwiches as we were leaving the studio, and he was 
positively effusive about some delicatessens he has frequented in Orange 
County.? I asked, "Carl, are you Jewish?"? He said yes, that he grew up in a 
Jewish section of Baltimore.? "Carl," I confessed, "you don't look Jewish, 
and you talk like a Communist.? What's your story?"? So we laughed about that 
and chatted away as he walked to his car at the radio station parking lot, 
and I walked to mine.? I asked him, "Carl, what did you think of that Mark 
Twain quote I used to dance on your 'Deregulation is Dead' statement, when I 
said that rumors of deregulation's death have been greatly exaggerated?"? He 
replied, "From the moment I uttered those words on the dais of the PUC 
hearing room, I feared someone was going to tag me with that Twain quote."? 
And it was I. 

Nettie Hogue was the other panelist on the FM show.? She spoke of the desire 
for a core/non-core split of the default customers whereby the small 
customers would be core, and the large customers would be non-core. The UDCs 
would be required to procure for the core, but not for the non-core. The 
larger customers, who have the ability and the resources could negotiate 
long-term contracts with suppliers other than the UDC.? If you take her 
platform, and tweak it a little, you get something that looks very much like 
our Morro Bay principle for releasing the greater than 100kW connected load 
customers from UDC default service. 

There is wrinkle in TURN's plan, however.? They want to keep all the retained 
generating assets (e.g., PG&E's hydro plants) for the core procurement 
portfolio.? I don't think the customers in the non-core group are going to 
like that.? They contributed revenue requirement to those retained plants, 
too.? They will want a credit for their contributions.? On the other hand, if 
PG&E and SCE were to transition to the core/non-core split, you can be 
assured the Utility Company's will charge both core and non-core classes for 
the carried stranded costs (the undercollection of revenue from today's 
frozen rate debacle).? The saw cuts both ways. 

Speaking of saws, our Governor simply did one bang up job on the State of the 
State message last Monday night.? Now that I am a semi-professional talking 
head (Give Us Quote), I was lined up by four news reporters prior to the 
address to standby with my opinion on the Governor's speech.? I was 
diplomatic, sort of, to the press.? Let me tell you what I really thought.? 
He stunk up the joint.? I couldn't believe how nervous he was during the 
delivery. I can understand a few slurred words, or a mispronunciation or 
two.? But Gray was grim.? As he rock-and-rolled into the guts of his 
comments, he sounded more and more like Mr. Rogers.? Can you say, "Eminent 
Domain"? He said at the outset that he wasn't going to assign blame or point 
fingers.? I was just a little hopeful that he would be conciliatory in tone.? 
Not.? He ranted and raved for forty minutes, half of which was bashing you 
folks for being, well, you folks.? You are selling his power out of State.? 
What is wrong with you people?? Portland based Avista's Linda Hamilton wrote 
me a note, and as an aside asked, " ( quite entertaining--your governor.? 
Somehow I have yet to put together how he intends to solve the problem ".? We 
don't get it either, Linda.? It is a mystery. 

Okay, E-gash heads.? Let's get it on. 

Things in the People's Republic of California 
?@@@ PX has Writ all over it 
?@@@ What are they doing in DC? 
?@@@ We have a Winner 

Letters 

Odds & Ends (_!_) 
?@@@ General Meeting on February 8 and 9 
?@@@ Tell Us If Your Company will be Represented at the FERC Jan 23 Meeting 
?@@@ WPTF accepts 30th Member 
?@@@ 

Things in the People's Republic of California 
?@@@ PX has Writ all over it 

The California PX did something that SCE couldn't do last week.? That is, 
they got a federal court to take notice on a Writ for a stay on aspects of 
FERC's December 15 Order.? The Writ asked the Ninth Circuit Court of Appeals 
to: 
? 1) Stay the FERC Order's prohibition against the IOU's selling into the 
PX.? Make such sales voluntary, rather than mandatory. 

2) Stay the April 30 termination of the PX's CTS rate schedule because a 
termination halts forward long-term trading in the PX's block forward market 
for contract deliveries that extend beyond April 30, and 

3) Stay the requirement that the PX implement the $150 breakpoint.


The WPTF Board deliberated on whether or not the group should support the PX 
in their petition.? The discussion was lengthy, and the vote took several 
days of e-mail correspondence between Directors.? Yesterday, the Board 
approved it's support and filed such with the Court, all parties, and FERC. 

At the same time, the Ninth Circuit Court of Appeals acted to set the 
question of whether it should grant a writ of mandamus to the PX and a stay 
of the December 15th order. The Ninth Circuit set the matter for oral 
argument on Wednesday, February 7,2001, at 3:00p.m. in Pasadena. Each side 
will be allowed 20 minutes to present their argument. The three issues to be 
argued are the issues raised by the PX in its motion for rehearing and stay. 

Good luck, gang. 

Things in the People's Republic of California 
?@@@ What are they doing in DC? 

This segment of the Burrito should be hilarious.? I will attempt to describe 
what I think is happening at the negotiations in Washington D.C. between the 
utilities, our generator and power marketing members, and the State.? The 
reason this will be laughable is that I don't have a clue what those people 
are doing, nor does the press.? Some press people have called me to see if I 
know.? That is a sure sign they are raking the bottom of the barrel.? Plus, 
when you folks in D.C. read this, you will mutter, "It didn't happen that 
way, at all." 

But, without hard evidence, the best thing to do is make it up as you go 
along.? Hey, it works for the PUC. 

There are several issues on the table.? In the general area of deferred 
payments, and the like, I think there is general agreement that something can 
be worked out.? I bet that was concluded early on in the discussions.? 
However, I believe the sticking point in the negotiations is the long-term 
forward contract prices. The State wants to "look tough" and get a 5? to 6?
/kWh price.? The sellers need a lot of back-end revenue recovery and security 
to provide such.? Contract length of a decade or more may be required.? But 
more difficult than contract term are the payment safeguards required on the 
part of the buyers to secure a lengthy contract.? How will the sellers hold 
the buyer's feet to the fire, forcing the buyers to pay the contract price 
when future spot prices are well below the contract price?? Will the State 
guarantee "no regulatory out"?? No State agency, much less the Governor's 
office could make assurances that bind future administrations.? So how can 
the sellers be sure they will be paid during the out years when the contracts 
are attractive to the sellers, and less attractive to the buyers. 

Banks will not finance deals, especially multi-billion dollar undertakings, 
if there is a regulatory out clause in the contracts.? That clause, alone, 
could make the contracts worthless. 

The clock is ticking, too.? The Bush team is set to move into the White House 
in ten days, and in preparation for the new FERC, Chairman Hoecker announced 
his resignation effective January 18.? The Chairman, despite the faults we 
may assign to him, did one hell of a stand up job during his tenure.? I think 
his greatest failure led to his greatest success.? He failed when he 
negotiated with the ISO and the State of California to allow the State some 
role in the governance of the ISO and the PX, vis a vis SB96.? That was a 
regrettable slip for which we are still paying the consequences.? Hoecker's 
greatest moment was his fierce opposition to the barrage of political 
pressure from California politicians to solve California's problems with a 
regional price cap.? I never thought he would stand up to that kind of 
pressure. 

Back to our folks in DC.? If I were one of them, I would let the utilities 
talk their hearts out about the need for reasonable long-term contract 
prices.? I would then show them the security I would need to provide those 
"reasonable" prices without me taking on any incremental risk.? The utilities 
would tell me they are unable to provide the necessary assurances, and I 
would sit back and say to them, "Okay, let's talk about a higher average 
price."? And around, and around it would go.? Time is on our side.? The new 
federal administration will be more sympathetic to my goals of competition 
and deregulation.? So why not wait?? If the contract talks fail, then whose 
fault would that be? 

Here is my advice to you folks freezing in the Nation's Capital.? SIGN 
NOTHING. Help the utilities with deferred payment schedules, but hold the 
line on the long-term forward price until the buyers, and the buyers' 
regulatory agencies get realistic. 

Things in the People's Republic of California 
?@@@ We have a Winner 

Just when you thought you have seen it all, along comes the super-duper 
winner of the "Longest Petitioner's Title in a Regulatory Filing" category.? 
We also issue a companion award for the longest coffee order at Starbucks. 

Okay, I'm not making this one up.? The Chief Legal Counsel for the California 
State Auditor filed at FERC the following motion: 

OPPOSITION OF CALIFONRIA BUREAU OF AUDIT TO EMERGENCY MOTION OF MARKET 
PARTICIPANTS TO REQUIRE THAT THE CALIFORNIAINDEPENDENT SYSTEM OPERATOR 
CORPORATION AND CALIFORNIA POWER EXCHANGE MAKE NO DISCLOSURES OF CONFIDENTIAL 
INFORMATION IN OTHER PROCEEDINGS UNLESS THERE IS IN PLACE A PROTECTIVE ORDER 
OR CONFIDENTIALITY AGREEMENT THAT IS SUBSTANTIALLY SIMILAR TO THE FEDERAL 
ENERGY REGULATORY COMMISSION'S MODEL PROTECTIVE ORDER AND MOTION TO SHORTEN 
TIME FOR ANSWERS, OR, IN THE ALTERNATIVE, TO STAY AND DISCLOSURE PENDING 
COMMISSION CONSIDERATION OF THE EMERGENCY MOTION

What the hell does that mean? 

I would hate to get an e-mail from the Auditor's Counsel.? The subject 
heading may be longer than the 2 mbyte on my download size limit. 

Letters 

A letter from APX's Jack Ellis who is based in London, and soon to return to 
the Bay Area for more than just a week's visit, sent me the following: 

"There's so much being written about this whole situation that it is 
impossible for a mere mortal to read it all every day.? California has turned 
from a mess into a disaster, which raises an interesting question.

"The Governor and Commissioner Wood, among others, have made very strong 
statements against the while idea of a deregulated (really a competitive)? 
electricity market.? However, I think we have to ask ourselves if 
deregulating an electricity market is such a terrible idea given the 
experience in other countries.? Scandinavia, for example, has an extremely 
successful market that has been operating for ten years without the problems 
that have become endemic in California?? Same for Germany, the UK, and 
several other European countries.? Prices are reasonable, customers have 
choice, and the market works well by any account.? Could it be that 
competitive markets are actually a pretty good idea done right but California 
went about it the wrong way?" 

Thank you, Jack.? We look forward to seeing you back here where things are a 
little less static.? You might miss Western Europe.? On the other hand, given 
some of the actors in our local California power play, it may become more 
obvious to you why the Dark Ages lasted 500 years. 

The next letter is from BPA's Don Wolfe who asks the philosopher's stone 
question, "Why?" He says, 

"Concerning the CPUC proposed criteria for forward procurement, you speculate 
that they are confusing physical hedging with physical delivery.? Although I 
don't claim to have mastered the nuances of hedging versus delivery, my 
impression was that their goal was less technical: that is, to eliminate the 
traders and any intermediate transactions, likely based on the belief that 
prices are marked up as power changes hands.? The result is de facto 
re-regulation, with suppliers and loads bound to one another in long-term 
forward contracts (with prices subject to close scrutiny and approval), 
leaving only a residual near-term and real-time markets.? When that's done, 
what sort of competitive market is there?"

From an anonymous friend, I received this critique of my style.? The author 
said, 

"I'm sorry Gary, but your Gou Jing and Speedy Bailout analogy is just too 
damn one-sided.? The generators are gouging in a very imabalanced market, and 
you're pretty much saying that the utilities should bear the brunt of the 
failure of the market.? What viable business ever made a deal to absorb the 
cost when prices got out of whack?? Why shouldn't the consumers pay the 
"fair" market price for the electricity they're consuming?? If the price 
isn't fair, and they don't want to pay it, why not use less energy?? It is a 
commodity, for chrissakes!!!? I just turn off the lights when I think my bill 
is going to be too high.? My hackles go up thinking that the generators can 
just raise the price as they see fit... As difficult for you as it is to 
accept, the State of California actually needs [the utilities] to transmit 
and distribute electricity...do you know any other entity with the means to 
keeps your lights on?" 

Well, yes and no.? Any transmission operator can do the same job regardless 
of the location and type of physical assets. One can buy that kind of 
expertise in the labor market.? As to market failures, and such, I suppose 
this letter demonstrates that there is a deep hurt, or emotional wrench, from 
being on the wrong side of an unhedged bet.? I know I would feel the same way 
if the decision were mine to hedge against the downside.? If I didn't, and 
prices moved against me, then I would pay the consequences. I would also feel 
angry and foolish.? Here, we have millions of people who are feeling not only 
the economic pain of someone else's stupid decision, but adding insult to 
injury, the decision was not in the consumers' hands.? It was definitely 
outside the reach of the people who will one way or another pay the bill.? I 
remain unmoved that the fault is the generators and power marketers.? They 
are and have been doing what they have always been trained to do: manage 
risk, pick positions, and relentlessly pursue opportunities.? Sorry. I think 
the anger directed toward the generators and power marketers is totally 
misplaced. 

Finally, Phil Muller of SDC Energy responded to last week's anonymous 
ruminations about those greedy power marketers.? Here is what Phil said: 

"As I look back on this week's burrito and in particular the anonymous 
critique of high prices, I can't help but working on these analogies a bit to 
add in some forgotten reality. 

Let's start with the cattle business analogy. This is exactly the way cattle 
producers run their businesses. Let's say the rancher actually grazes his 
cattle on government range land at low cost which allows him to raise many 
head of cheap cattle that is sold to McDonalds to make Big Macs.? The price 
that McDonalds is willing to pay for his beef has not gone up (he doesn't get 
to set the price for his product, remember) in fact it is at a low level 
because people are eating fewer big macs.? The reason that hay is worth $80 
per bale is that there's a shortage of hay and ranchers who are raising prime 
beef for Morton's or breeding stock or thoroughbred race horses are willing 
to pay that much because of the value of their livestock.? By selling his hay 
for $80, Old McDonald is making it possible for more valuable animals to be 
fed rather than "wasting" hay to feed scrawny cattle that no one wants to 
buy.? The fact that he's idling his land and equipment means that he might 
have the time and money to invest some of his "excess profits" in upgrading 
his ranch to maybe allow him to grow more beeves more efficiently in the 
future.? This is a damned good way to run a business.

"The gas station example is another good one.? In this case a monopoly seller 
uses his market power to achieve the maximum possible return.? Just suppose 
this actually happened.? What would you do if you pulled into a gas station 
and were told that you'd be charged $200/gallon for gas because your tank was 
empty?? If it were a matter of life or death you might buy as little as 
possible to get you to the next gas station.? Otherwise you might call AAA or 
someone to come to your rescue and deliver enough gas to get you out of 
there.? Or you might just leave your car there and hitch a ride to the next 
gas station.? If this gas station owner were able to pull this off with any 
frequency, however, you might decide to get into the gas business yourself 
and open a station nearby to provide gas at slightly lower prices.? We all 
know what happens then - competition. 

"Finally, moving to the airline analogy - going from the bottom and working 
up - is exactly what happens in the electricity market.? If you have demand 
responsiveness, the first consumers to stop using are those unwilling to pay 
the lowest high price.? When you're getting $4000/MWh prices it means that:? 
1. everyone is willing to pay that price, 2. the price is not being passed 
through to the consumer, or 3. the consumer is not aware of the price level.? 
Unfortunately, in our over-regulated deregulated market, the second and third 
results are what happen most of the time. 

"There are only 2 ways to ration electricity during a shortage - by price or 
by prescribed rolling blackout." 

I never would have thought that several anonymous analogies would inspire so 
much E-gash. 

Odds & Ends (_!_) 
?@@@ General Meeting on February 8 and 9 

Have you made your hotel reservations at the Old Scottsdale Marriott for the 
evening of February 8?? The cut off date for the cheaper hotel rate is 
January 16, next Tuesday.? The phone number for the Marriott Hotel in old 
town Scottsdale is 1-800-835-6205 or 480-945-1550. 

I have two additional announcements about the General Meeting. 

First, on Thursday evening, we will have an open discussion/keynote speaker 
led by Dr. Ben Zycher, Senior Economist at the RAND Corporation. Dr. Zycher 
has published extensively on public policy, government regulations, and the 
applications of these areas to the current electric deregulation crisis in 
California.? Dr. Zycher has also been featured in many Op-Ed pieces including 
"Don't Blame the Power Crisis on Deregulation,"Los Angeles Times, December 
28, 2000. 

Second, substituting for Scott Miller of FERC's Market Monitoring Group will 
be Bill Meroney.? Bill will be a guest speaker on Friday morning, February 9, 
along with our two other guest speakers:? Phil Sharp from the Harvard Kennedy 
School and a member of the Bush energy-policy transition team, and John 
Underhill of SRP. 

All WPTF members, both Board level and general, are invited to attend the all 
members meeting on Thursday afternoon, starting at 3:30 p.m.? The no-host 
dinner reception ($45/person) will be held from 7 p.m. to 9 p.m. on Thursday 
evening, February 8.? Reservation for the dinner must be made with our event 
coordinator, Barb Ennis at <baennis@earthlink.net>. Or you can call Barb at 
402-468-4966.? On Friday, our General Meeting will begin at 9:00 a.m. and end 
at noon. Lunch will be provided by WPTF. 

Odds & Ends (_!_) 
?@@@ Tell Us If Your Company will be Represented at the FERC Jan 23 Meeting 

At the WPTF Board meeting this week, there was a discussion regarding the 
upcoming FERC technical conference on market monitoring to be held on January 
23, at the FERC headquarters building in D.C.? It was understood by several 
of the WPTF Board members that days before the meeting, the ISO staff will 
release a policy or position paper on market monitoring.? A suggestion was 
made that any and all WPTF members who might attend that meeting should work 
together on a joint position paper that would collect our opinions and ideas 
in response to the ISO position, and promote any new concepts that we might 
develop. 

Therefore, could you please e-mail to me the attendees from your company to 
the FERC meeting.? We will set up a future conference call to assemble a 
group, and discuss the merits of different market monitoring ideas.? The 
purpose of the group effort is that a joint response to the ISO position may 
be more efficient and timely. Any discussion WPTF conducts on market 
monitoring will be an advocacy response to anticipated policies that may 
emanate from the ISO and FERC. 

Odds & Ends (_!_) 
?@@@ WPTF accepts 30th Member 

We are still growing.? WPTF's 30th member, and seventeenth general member is 
Xcel Energy Marketing.? Xcel is located in Amarillo, TX and Denver, CO.? The 
point person for Xcel will be Joe Morrato, Regional Sales Manager 
(303-308-6032).? I have known Joe for several years, and I look forward to 
working with him again, and meeting his colleagues at Xcel. 

Odds & Ends (_!_) 

Well, it is the end of another long week in paradise.? Someone said to me 
that the rest of the year will be like this. Every week throughout the year.? 
It makes me cringe to think of it. 

Usually I put some humor in the Burrito, right about here.? But I have 
another idea.? Dan Douglass of Arter & Hadden sent me a copy of an article in 
Reason Magazine that was so good, it deserves to be read.? It was written by 
Michael Lynch, and it is entitled, "California Scheming, Don't blame 
deregulation for the Golden State's electricity snafus". The publisher 
granted my request to distribute the article to you. 

Please click on the browser button below, and read the article.? It will make 
you feel a lot better than any humor I can think of at the moment.? Next week 
we can get back to the usual format. 

http://reason.com/ml/ml010401.html 

Have a great weekend. 

gba 
?