THE FRIDAY BURRITO

"If you aren,t confused, then you don,t understand the problem."

That was a close one.  Favre threw the ball down field to his favorite
receiver last Monday night, Antonio Freeman, in what turned out to be
the last play of the game in overtime.  Viking's defenseman Dishman
flicked the ball up in the air, Freeman went to the ground, but the ball
landed on Freeman,s back.  It slid down Freeman,s jersey, and as he
turned to look, the ball gently poured into Freeman,s waiting open
hands.  The ball and Freeman made a fair catch, and a quick trip to the
end zone.  Game over.  Packers won.

That was the closest and best ending to a football game I can recall in
a long time.

Otherwise it was a ho-hum week.

Oh, yah.  The State of California held its one-party election last
Tuesday, and all members of that party won, I think.  There is no
Republican Party anymore in California.  Those politicians have been
exported like our in-state electrons under price-caps to Arizona or
Nevada.  The radical minority is now firmly in place.  This will make
power-related legislation a hoot in the coming legislative session.  A
veto-proof Assembly and Senate with a $7 billion surplus.  Jeez.  What
would you care to bet that we don,t see one nickel of that $7 billion in
tax reductions? You know we,re in trouble when Lady Bird Bowen and Steve
Peace claim that they are each to the far right of their Democratic
colleagues.

Speaking of Mr. Peace, we had a chance to meet for the first time, and
have a real conversation.  It was in Washington, D.C., a good neutral
turf, at the hotel where quite a few other Californians and I were
staying.  We were attending FERC,s technical conference on the Order
issued last week.  It was all an accident, I suppose.  I was sipping a
brewski with CMUA,s Tony Braun in the hotel bar.  I was explaining to
Tony what a terrible thing it was for CMUA to support a return to cost
of service rates, and what are we going to do about the ISO,s GMC
filing?  In walks Peace and his legislative aide, John Rozsa.  So, being
a nice guy, I utilized your hard-earned WPTF dues, and bought them both
a drink.  A bloody Mary for Rozsa and decaf coffee for  the Senator.

Two-and-one-half hours later we were still drinking and talking.  I hate
to admit it, but I had a good time.  "Why do you call John Fielder +The
Great Warrior,?" Peace asked me after I shared with him my nickname for
JF.  I told him the story, skipping all the nicknames handed out in past
Burritos to the two gentlemen in my then present company.  A lot of what
we discussed Peace repeated to the FERC Commissioners the next day.
Below, I review the logic of his case concerning the future of
California,s restructured power industry.  For the first time I see the
method in his madness.  He takes a very political view of things, which
means economics and physics don,t hold a candle to political factors.

We also talked about the power business, movie production (Attack of the
Killer Tomatoes V is coming out soon.  I asked wasn,t ATKT  I through IV
enough?  He said he was going to keep on doing it until he got it
right.  I offered that that was exactly what Glen Campbell said when he
married his fifth wife.), Dennis Miller on Monday Night Football (we
don,t like DM on MNF), and why he ever took an interest in the power
industry (answer: he goes into it and out of our industry from time to
time, just for a visit).

And at the moment, I am working on the Burrito in my DC hotel room,
watching the clock advance into the wee hours of the night.  What,s a
Thursday night without a Burrito to write?  I won't finish this week,s
edition on time.  I only have my travel computer with me.  So, the
Burrito will go out Friday, or Saturday.  Be patient, and don,t get
pushy.  If it,s going to take another week to declare George W the new
President, assuming the Florida vote remains stable, then you can wait a
day or two for the Burrito.

By the way.  Last week,s Burrito was a great companion for those of you
without much humor in your life.  Pity.  Many of the newer readers
lapped up the ISO Going Out of Business items.  One reader wanted to
know if they could purchase the Market Power Exercise Bike in
California, export to Oregon where it sells for ten times the price, and
then bring it back in the State.  I said you could do that, but it would
be wrong.  I would report that person to the Market Surveillance
Committee, and as punishment that person would have to read every
document the ISO,s Department of Market Analysis ever wrote.  Some
aren,t even colored in yet.

Here is this week,s menu.

>>> Things at the FERC
@@@ A Day at the FERC
>>> The Mailbag

>>> Odds & Ends (_!_)

>>> Things at the FERC
@@@ A Day at the FERC

There is one thing you have to give the FERC Commissioners.  They put in
a full day, and more, when they hold one of these touchy feely meetings
at their headquarters in Washington, D.C.  From 9 a.m. to 6 p.m. they
kept up the Q&A, panel after panel.

What was accomplished?  Again, it is hard to say, because I had trouble
reading the will of the Commissioners based on body language, or
questions they posed to the panelists.  The four Commissioners gave
little hint of what was on their minds, and you wonder what they were
absorbing.  I did notice that all four Commissioners reviewed any and
all written material presented by the panelists.  I couldn,t figure out
how they were able to read, listen, and ask questions simultaneously.

The highlight of the day, unquestionably, was our California Delegation
of Lynch, Keese, Kahn, Peace, Bowen, and a Republican supervisor from
the County of San Diego.  They brought with them a video address from
Governor Gray Davis.  I don,t know how to describe the video, but I will
try.  Imagine a talking head, with hands, behind a desk with the
American and California flags in the background.  Imagine the Gov
castigating the FERC Commissioners for not following through with their
jobs after claiming that wholesale markets are dysfunctional, and that
wholesale power rates are unjust and unreasonable.  Imagine this State
official verbally whipping the Gang of Four for not ordering refunds.
Imagine the Gang,s surprise to hear the Gov tell them that
re-appointment of the ISO Governing Board members is not within FERC,s
jurisdiction.  THEN, imagine the same Gov, camera close up, smiling and
ending with, "Other than that, you,re a pretty nice group of people!!".
That was the State,s opening to the FERC.  The crowd, first stunned,
roared with laughter.  Was this intentional, or an out-take some one
slipped into the tape?  We,ll never know.

Steve Peace went into his explanation about the facts of life.  Listen.
The political landscape of California has changed.  It is wildly
liberal, nee socialist.  If there is another summer of price spikes like
last summer, with the very real possibility that both SCE and PG&E will
be done with their respective rate freeze,s, then over 10 million
electric customers will be susceptible to damagingly high rates.  The
populace will revolt.  A ballot initiative, not unlike the failed Prop
9, will appear in November of 2002, and the Governor, running for
re-election, will support the proposition.  The proposition will also be
supported by the three underpinnings of the Democratic Party ... labor,
minorities, and environmentalists.

The proposition may require that all IOU assets be condemned by the
State, including the output of the divested power plants.  The
proposition will pass, and like all good propositions, will be
challenged in court.  The court case will lead to a "settlement" whereby
consumers and generators will re-arrange the money transfer between
buyers and sellers, and FERC will sit idly by as over fifty percent of
the generation assets in the West are controlled by the State of
California.  Stuff that in your RTO pipe.

Does Senator Peace think this is a good idea?  No.  Does he think it is
politically possible?  Yes. Why?  He refers to a landmark case he calls
"Texaco vs. Federal Power Commission" as the case which makes this a
slam dunk.  I am not familiar with this case, but we have plenty of
Burrito readers who might.  Educate us, please, and give us your
assessment.

In any event, the whole kit and caboodle will end up in a court
challenge, and if FERC wants to avoid the ballot initiative and the
challenge, FERC should retroactively order the refunds from the
generators because the FERC has deemed wholesale rates to be unjust and
unreasonable.

Now, whether or not I agree with the Peace,s scenario, and Lady Bird
Bowen nodded to it too, the logic isn,t flawed.  The premises may be,
but not the logic.   I think a ballot initiative to wipe out the
competitive market is likely regardless of what FERC does or doesn't
do.  The UDC,s won't object.  Their stranded costs will be paid, and
what the heck, maybe they can return to the days of rate-of-return
regulation.  The unions will love it, no doubt because it implies jobs.
Minorities will support it, no doubt, because the have-nots need to stop
the alleged gouging by the generators.  Environmentalists will be stuck
between a rock and a hard place.  They want conservation and demand
management, which you don,t get without market prices.
Environmentalists may be iffy.  DKNY, give us your opinion.

That was the card the California Delegation played upon FERC's table.

I didn,t see one FERC Commissioner blink.  I didn,t see one person on
our side blink either.

I can tell you why I think this plan wont work.  But that isn,t
important.  What,s important is that each of you understands the logic
that drives the scenario. Ballot initiatives are a California specialty.
So we are faced with the stark reality of having to face an initiative
in two years that is challangeable, time consuming and expensive.

Impossible?  Maybe, maybe not.

Mr. Florio, of TURN, made comments early in the day, one of which
suggested that if FERC orders the ISO stakeholder Governing Board to be
replaced (that,s good, he says), then the State and FERC should
compromise on a board with a mix of State and techno interests. In other
words, let's keep the EOB's finger in the ISO pie.  Without a
negotiation on Governing Board replacement, there will be a long legal
wrangle that will leave the ISO rudderless.  To this, I responded on my
panel, as did others, there is no way FERC can allow a compromise.  That
would put the same problems before the Commission at a later date.

It,s Governance, more so than market structure.  In fact, you could
summarize the three competing theses about the problems in California
thusly:  Governance first, and market structure second (that,s us, I
believe), or market structure first, and Governance second (SEMPRA,
TURN, fellow travelers), or the hell with both Governance and market
structure, just force the generators to refund the alleged excesses
(People,s Republic).

Of course, there was plenty of discourse on the Order,s proposed price
cap of $150.  I think FERC got the usual amount of confusing signals
from all parties.  Some say the cap is too high, some say too low, some
say just right, and some say to hell with price caps, just force the
generators to refund the alleged excesses (People,s Republic).

The Commissioners ended the long day with a series of questions they
would like respondents to address in their November 22nd written
comments:

1.  What should the CPUC do, either on it,s own or in conjunction with
FERC, to establish policies that provide for UDC reasonableness for cost
recovery if the UDC,s procure power from a supplier other than the PX
Day Ahead market?

2. What is the definitive story as to the price spike in California this
summer given all the information on generating costs, opportunity costs
etc? How did we get to the prices to which we observed? (This was
Hoecker's question, and I find it disturbing because the FERC staff
report did a great job, I thought, explaining the factors.  What more
does he want?)

3. What are people,s observation regarding the division of
responsibilities between FERC and the CPUC in handling California,s
wholesale bulk power market?

4. What should be the selection process to replace the ISO and PX
Governing Boards that will avoid the resurrection of the influences
currently found among the stakeholder boards?

5. What should FERC do as an alternative to the $150 price cap, and how
should FERC evaluate bids above the cap level?

6. Should the ISO be rid of the second-price auction?

7.  How can FERC move California into the regional power market of the
West?

8. Did FERC get it right when they specified a replacement board for the
ISO and PX of 7 members?

>>> From the Mailbag

I got a lot of mail on last week's stuff.  A lot, and I love it.  It
means I have to create less original tripe, and at the same time allow
you all to educate the rest of the group.

For example, BPA's Don Wolfe wrote, "Putting price caps in place until
the market is proved to be competitive is like nailing your foot to the
floor until you prove you can dance."

Jim Kritikson had some interesting comments about the FERC Order.  He
said,

"p.5 [FERC Order]     'elimination of the requirement for balanced
schedules; '
"p.31    'We therefore direct the ISO and the PX to pursue establishing
an integrated day ahead market in which all demand and supply bids are
addressed in one venue.'

"These items seem to call for an ISO day-ahead integrated dispatch.   In
fact, this goes further then elimination of the market separation
constraint that was previously discussed.  That is, it would seem to say
it is OK for you to send in a demand schedule with no supply, and a bid
indicating how much you are willing to pay via your adjustment bid, and
the ISO will find a suitable supply for you.

"p.31    'Therefore we will require that the proposal, at a minimum,
include a meaningful number of zones that significantly address
congestion on the system. In this regard, we also require that the
proposal provide a comparison with a nodal energy price proposal (i.e.
locational marginal prices for each bus or node on the grid). We also
expect the ISO to conduct a periodic (annual) review to evaluate the
accuracy of the zones for congestion management.'

"This seems to send a fairly strong signal that nodal pricing is the
standard to be met.   Is your model as good as nodal?  (Do you suppose
the "single price" at each node is also subject to the soft and hard
price cap?)

"Re: transparency, the impact on congestion pricing of the soft price
cap does not seem have been considered.   At present, the Usage Charge
is the difference in zonal energy prices.   In the future it may not be.


"Consider the following.  The soft cap is hit in both zones, so the PX
price is $150 in both the NP15 and SP15 zones, but the Usage Charge is
$100, set by a $250 inc bid in the north and a $150 dec bid in the
south.  The PX is sending 1000 MW from south to north, and must pay
$100,000 in congestion rents.   So, there is a Usage Charge to go
between 2 zones with the same energy price.

"Of course, this is not limited to the PX.  The same situation would
apply to the ISO in real time.   It looks like uplifts will be needed to
collect the rents.  Where and how the rent is collected will become very
important.

"Preserving locational signals will be a challenge under these
conditions. "

Harry Singh of PG&E National Energy Group also chimed in on the
inference in the Order to the elimination of market separation in
forward markets.  He said,

"You could interpret this in more than one way.  For example, you can
interpret it as the end of balanced schedules and giving the ISO a new
role in operating the day-ahead energy market. I'd think that's more
significant than imposing LMP and spells the end of the market structure
we have in California. You can also take a weaker interpretation and
assume they are talking about market separation in congestion
management. Maybe this is the more likely explanation but they should
probably have included it in the section on congestion reform."

Our resident environmentalist, Dan Kirshner, No-Yes, wrote to us that,

"On the new ISO and PX Boards, note that FERC says nothing about how
those six new Board members will be replaced.  Nor do I see any reason
for optimism that the EOB is out of the picture here.  Won't the state
assert at least this authority?

"You seem to ascribe more meaning than I do to the $150 "soft cap."  It
cannot be an attempt to hold bids below $150.  The number is simply too
low  (especially when you're trying to attract new capacity, as all the
rhetoric proclaims).  More likely it's an attempt to be seen as doing
something rather than nothing.  (Like a parent's lame, "all right, but
NEXT time..."  You probably know how effective THAT is.)

"At first I thought -- as I may have mentioned -- that the "pay as bid
above $150" approach was a clever response to the supposed game where a
bidder with multiple plants would bid a few of them high in an effort to
set the MCP, and the rest low, insuring that they wouldn't get shut out
of high prices if their high bids didn't get selected.  The only odd
part to me was that no one has yet claimed that this game is what's
actually going on.

"It reminds me of one of the audio messages my wife has attached to
mouse events on her computer.  They are based on the old Frankenstein
movies.  Opening a program causes Dr. Frankenstein to exclaim, "Give my
creation life!"   Very appropriately -- applied to most computer work,
and now to FERC's work -- when you close a program the voice intones:
"You've accomplished nothing, fool."

I tried to dissuade Dan from including in the Burrito the mouse event,
which I thought was hilarious.  He insisted, stating that "No.  This is
a tying arrangement.  You have to use the mouse trigger stuff."  So I
did.

Finally, one reader, who shall remain anonymous, wrote, "Okay, I
definitely want the Market Power Exercise Bike, haven't been out very
much lately and don't want to put on those dreaded "holiday pounds"
between fruitcake and latkes... But the price is somewhat foggy... what
if I buy it in state, export it, and then send it back in under a
different name?

"I'll also take one of the "Singing the Blues" by Loretta and Michael
but I was hoping it included a song that should be so near and dear to
our hearts 'Folsom Prison Blues' but maybe that's on their 'best of'
album along with 'Achy Breaky Heart'

"Anyway the ISO attire for sale is really "last years fashion" and you
know I would not be caught dead in anything outdated.  But by the looks
of the last Board meeting I'm sure you'll have plenty of takers."

You know, I just need to be more careful with the distribution of these
Burritos.  When I walked into the hearing room at FERC this week, about
a dozen people said hello, and jumped right  into a discussion about
Burrito busters.  Keep in mind, it was 6 am my time.  Can we talk?

Another anonymous writer penned the following, "-- the FERC order makes
it clear that FERC doesn't see California as big enough to be an RTO.
Installing an independent board is problematic given SB96 unless Cal-ISO
goes regional.  So what if Desert Star offered up its 5-man board,
Cal-ISO added Terry and a seventh independent director, and the two
finally consolidated?  The current ISO Board and the DS advisory
committee could be trimmed and consolidated as the advisory group.  But
wouldn't this be an opportune time?  The DS guys could be more assured
of not being run over if 'their' board is installed.  They haven't
created an infrastructure or software and Cal-ISO needs to redo a bunch
of stuff.  Could it be a 'win-win'?"

Nothing out here is win-win.  It's lose-lose.

>>> Odds & Ends (_!_)

Back in California after a long flight home.  It's raining.  My son is
playing guitar in his room because today he doesn't have school.  For
him, it is a holiday.  I forgot.  What are holidays?

A number of you folks called me after the FERC Conference yesterday.
The item you most wanted to talk about was the dialogue between Steve
Peace, and Commissioner Hebert.  Hebert became quite upset with our
Senator.  Hebert doesn't like being interrupted with comments such as,
"The Governor wasn't including you in his comment when he said 'You're a
great group of people.'"  After the bantering went back and forth,
Hebert, frustrated and feeling that the seriousness of the Commission
was impugned by Peace's behavior, threw up his arms, and uttered, "I'm
not going to debate with you anymore! It's a waste of time."

My panel was next on, so when the California Delegation was dismissed, I
walked over to my spot on the panel's table.  Peace-man was grabbing his
suitcase and making a run for the exit.  I told him, "I'll mop this up
for you, man, stick with me."  I mean, what are friends for?

The Great Warrior was on my panel.  He was great, as always.  When Dan
Larcamp of the FERC staff asked a question comparing wholesale rates in
California to UDC generation rates, The Great One responded that if you
take out the QF payments, the frozen-rate generation component for SCE
was about 4?/kwh.  I shot back, you have to include the QF payments.
Those are fixed capital costs in the SCE portfolio that SCE charges its
retail customers.  The number for Edison is 7?/kWh.  And $70/MWh is for
all months since competition began in 1998, except the last four
months,  higher than the wholesale prices have been. The Great One
didn't lose a moment and said on the record, "Gary is right. It would be
seven cents."  And that is what I love about this business.  You can sit
with a group of people, ususally men, sip some coffee or some beer, you
tell each other lies. That is how you become good friends.

Here is this week's cookie.  It's from Linda Hamilton whom I hope is
keeping dry up in Portland.  If it is wet down here, then it better be
wet up there.
================
Why did the chicken cross the road?

VICE PRESIDENT GORE

I fight for the chickens and I am fighting for the chickens right now.
I will not give up on the chickens crossing the road!  I will fight for
the chickens and I will not disappoint them.

GOVERNOR GEORGE W. BUSH

I don't believe we need to get the chickens across the road.  I say give
the road to the chickens and let them decide.  The government needs to
let go of strangling the chickens so they can get across the road.

SENATOR LIEBERMAN

I believe that every chicken has the right to worship his or her God in
his or her own way.  Crossing the road is a spiritual journey and no
chicken should be denied the right to cross the road in his or her own
way.

SECRETARY CHENEY

Chickens are big-time because they have wings.  They could fly if they
wanted to.  Chickens don't want to cross the road.  They don't need help
crossing the road.  In fact, I'm not interested in crossing the road
myself.

RALPH NADER

Chickens are misled into believing there is a road by the evil tire
makers.  Chickens aren't ignorant, but our society pays tire makers to
create the need for these roads and then lures chickens into believing
there is an advantage to crossing them.  Down with the roads, up with
chickens.

PAT BUCHANAN

To steal a job from a decent, hardworking American.

JERRY FALWELL

Because the chicken was gay!  Isn't it obvious?  Can't you people see
the plain truth in front of your face?  The chicken was going to the
"other side."  That's what "they"  call it-the "other side."  Yes, my
friends, that chicken is gay.  And, if you eat that chicken, you will
become gay too.  I say we boycott all chickens until we sort out this
abomination that the liberal media whitewashes with seemingly harmless
phrases like "the other side."  That chicken should not be free to cross
the road.  It's as plain and simple as that.

DR. SEUSS

Did the chicken cross the road?
Did he cross it with a toad?
Yes!  The chicken crossed the road,
but why it crossed, I've not been told!

ERNEST HEMINGWAY

To die.  In the rain.

MARTIN LUTHER KING, JR.

I envision a world where all chickens will be free to cross without
having their motives called into question.

GRANDPA

In my day, we didn't ask why the chicken crossed the road.  Someone told
us that the chicken crossed the road, and that was good enough for us.

ARISTOTLE

It is the nature of chickens to cross the road.

KARL MARX

It was a historical inevitability.

SADDAM HUSSEIN

This was an unprovoked act of rebellion and we were quite justified in
dropping 50 tons of nerve gas on it.

RONALD REAGAN

What chicken?

CAPTAIN JAMES T. KIRK

To boldly go where no chicken has gone before.

FOX MULDER

You saw it cross the road with your own eyes.  How many more chickens
have to cross before you believe it?

FREUD

The fact that you are at all concerned that the chicken crossed the road
reveals your underlying sexual insecurity.

BILL GATES
I have just released eChicken 2000, which will not only cross roads, but
will lay eggs, file your important documents, and balance your checkbook
-and Internet Explorer is an inextricable part of eChicken.

EINSTEIN

Did the chicken really cross the road or did the road move beneath the
chicken?

BILL CLINTON

I did not cross the road with THAT chicken.  What do you mean by
"chicken"?  Could you define "chicken" please?

GEORGE BUSH

I don't think I should have to answer that question.

LOUIS FARRAKHAN

The road, you will see, represents the black man.  The chicken crossed
the "black man" in order to trample him and keep him down.

THE BIBLE

And God came down from the heavens, and He said unto the chicken, "Thou
shalt cross the road."  And the chicken crossed the road, and there was
much rejoicing.

COLONEL SANDERS

I missed one?

THE CALIFORNIA DELEGATION AT THE FERC CONFERENCE

To hell with the chicken, just force the generators to refund the
alleged excesses.
======================

Have a great weekend.
gba