FYI,

My understanding is we adjusted our prices down to the cap today in an 
abundance of caution.



FYI

Western Wholesale Power Trades Fri Above FERC Price Limit    
Updated: Friday, June 29, 2001 05:42 PM ET   
  

NEW YORK (Dow Jones)--The price of power in the western wholesale market on 
Friday topped the limits set by federally ordered price controls, traders 
said. 

Bulk electricity trades as high as $107 a megawatt-hour in the western spot 
market were confirmed by one of the buyers. Also, Enron Corp.'s (ENE, news, 
msgs) Internet-based trading system publicly offered to sell power in Nevada 
at $105/MWh. 


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The maximum price allowed under a formula set June 18 by the Federal Energy 
Regulatory Commission is $91.87/MWh. 

Asked about the overshoot, FERC said sellers would have to justify prices 
above the benchmark. 

"We constantly monitor the markets out there," a FERC spokeswoman said. "If 
there is anything above the proxy price, they would have to come in and 
justify it." 

Enron spokeswoman Karen Denne said the company posted the $105/MWh offer on 
its EnronOnline system, but didn't sell any power above the FERC limit. 

FERC's complicated price limits for the West set a maximum price based on the 
operating cost of the most expensive generator used to meet demand for 
electricity during power alerts in California. 

Suppliers who claim prices above the limits must explain why to FERC, which 
can order refunds if it isn't convinced. 

Some market participants point to a loophole. The FERC order only applies to 
"spot" market transactions, which the commission defines as deals done within 
24 hours of the commencement of deliveries. But power traded Friday is for 
delivery Monday, so some market participants have said that the controls 
don't apply to Friday deals. 

"It does appear to be a loophole," Denne said. 

Gary Ackerman, executve director of the Western Power Trading Forum, an 
industry association, said that traders could start doing more transactions 
two days in advance to circumvent the FERC rules if market prices rise above 
the cap, which can change based on prices for natural gas. Or deals could be 
done at the cap with the seller adding non-monetary payments such as natural 
gas or free electricity delivered later in the year. 

Other market participants said they simply will buy needed power supplies at 
the market price, regardless of the FERC rules. 

On June 19, the first day the new rules took effect, hour-ahead deals were 
done at $300/MWh. So long as two companies agree to a price and the buyer 
doesn't later complain to the FERC, it seems that FERC would be hard-pressed 
to enforce its rules. 

If a buyer were to file a complaint after such a deal, it would quickly find 
itself locked out of the market when supplies become tight, traders said. 

The FERC spokeswoman said the above-limit prices would have to be justified 
even without a complaint. 

The price cap will be recalculated whenever the California Independent System 
Operator enters its next Stage 1 supply emergency. At that time the cap will 
likely be much lower, because gas prices have fallen significantly since the 
current cap was set. 

-By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.com 

(Andrew Dowell contributed to this article.)