Sorry about this gang, but my new computer messed up the e-mail list.
It's 4 am and I think I have fixed it.  Maybe.  Bear with me if you are
getting this for the second time this morning.

gba

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Message-ID: <398A81DA.E883D290@idt.net>
Date: Fri, 04 Aug 2000 01:42:26 -0700
From: Gary Ackerman <foothi19@idt.net>
Reply-To: foothi19@idt.net
Organization: Foothill Services
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To: webmaster <charlotte@wptf.org>
Subject: WPTF Friday Amen Burrito
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? 
THE FRIDAY BURRITO 
"...more fun than a fortune cookie, and at least as accurate." 

Everyone is getting into the act.? When I started this gig, I was the only 
guy in town writing to folks like you about the power industry in 
California.? I wrote about what,s new, what,s happening, and all the 
important stuff.? This week, Governor Gray Davis decided to write his own 
Burrito.? His epistle got more press than mine, but why is he muscling in on 
my turf?? Not to be outdone, PUC President Loretta Lynch released a report 
which looks into every facet of California,s power business.? No stone left 
unturned. I,m telling you, there isn,t enough room in this business for all 
of us.? They need to clear out. 

With people like Herr (Hair?) Peace, Governor I,m-Not Mr.-Rogers Davis and 
Let,s Do Lynch, who needs a Friday Burrito?? They re-define our reality each 
week with mind-numbing aplomb.? For example, starting in early June, the PX 
was ordered to compete for business against other Qualified Trading 
Vehicles.? Then, two weeks later, the Energy F_hrer legislated that idea to 
an early death which kept the status quo for at least one year.? This week 
the PUC approved 5-year bilateral deals for PG&E and SCE, thereby opening the 
PX to competition, and emasculating the PX,s Block Forward Market. Zip, bam, 
boom. 

I can,t wait to see what next week will bring.? I hear Senator Bowen is 
holding Committee hearings on re regulating the industry, and the Governor,s 
new Energy Security Council will meet to decide six things: 

What,s for lunch? 
Who will sit at the head of the table? 
Does anyone have good seats for next week,s Democratic convention? 
Is there anyone we haven,t indicted yet in the power industry? 
Who will crank up the air conditioning in this room?? It,s getting too warm. 

Then, they will collect data from innocent businesses under subpoena, ignore 
the facts, and publish a report.? It makes one want to take a deep breath, 
and inhale the scented fumes of democracy. 

You know, I can,t think about where to begin, so let,s start somewhere. 

Things on the Island of California 
?@@@ Is there anyone left at SDG&E with a brain? 
?@@@ The PUC issues its scathing report 
?@@@ The ISO invokes $250 price caps.? Duh! 

Things at the throne of FERC 
?@@@ Amen for the Morgan Stanley Order 

Odds and Ends (_!_) 

Things on the Island of California 
?@@@ Is there anyone left at SDG&E with a brain? 

Well, the answer very clearly is no.? I have been astounded by repeated 
attempts of SDG&E,s most senior people to ape humans, but instead they mimic 
apes. 

Consider the following.? First, they waltz their default customers into the 
summer with little of no protection from price spikes in the wholesale 
market.? Forgivable in that it is human to err.? The prices skyrocket in 
June, and they start looking for who to blame.? &Must be them damn 
independent generators,8 say their managers.? Gary Cotton informs the ISO 
Governing Board that hedging SDG&E,s position in the Block Forward Market 
wouldn,t have made any difference.? There,s one nobel laureate who missed his 
prime. 

Next, under pressure, they ask for help from suppliers and anyone else who 
will assist the utility and their customers.? Nine offers show up at their 
table, and they can,t choose any of them.? Again, Mr Cotton tells his fellow 
ISO Governing Board members that these things take time, and we don,t to rush 
since there are many legislative barriers, and, well, the surfing was good 
this week so why spoil it? 

Now they are in a panic because the Energy F_hrer is visiting old ladies 
living in trailer parks, advising them not to pay their SDG&E electricity 
bill, and to continue to operate their air conditioners.? SDG&E puts a full 
page ad in the local newspaper telling everyone that SDG&E is doing 
everything it can to lower their electric bills, including asking the ISO for 
a $250 price cap, but the public can help by calling the ISO [address and 
phone number provided in the ad] and urging them to lower the cap.? I always 
thought the location of the ISO was a State secret for security reasons.? No 
secrets in San Diego. 

But we are not done.? No sir, we are not.? Those buffalo heads who run that 
company decide they will win a gold star on their collective foreheads, and 
implement one of the four resolutions passed by the Electric Oversight 
Board.? The one they pick is to petition FERC on an expedited basis to cap at 
$250, the price at which sellers may bid energy or ancillary services into 
the ISO and the PX.? The primary reason is that Western power markets are not 
workably competitive.? In other words, they want FERC to set a max price on 
what generators can sell in addition to the price limit at which the ISO can 
buy! 

What I find most astounding about this double talk is that SDG&E continues to 
collect tons of money from the sales of regulatory must run energy into the 
PX.?? These are sales from their stranded assets.? Their grief hasn,t abated 
their greed. 

So, to recap, SDG&E missed the boat on price hedging, failed to win consumer 
confidence in public meetings, asked for help from suppliers and did nothing 
in response, then filed at FERC to cap the sale price because the wholesale 
market into which they sell (over-priced?) energy is not workably 
competitive.? Too much time in the direct sun light. 

Things on the Island of California 
?@@@ The PUC issues its scathing report 

The PUC report released yesterday is a gem with which I have not spent enough 
time.? I only read the Executive Summary, and that only because our counsel, 
Dan Douglass forwarded me a copy. Let me pick out some of the gems in 
President Lets Do Lynch,s burrito.? I would recommend reading the whole text 
if you have time, and if you seek perverse entertainment. 

&California is experiencing major problems with electricity supply and 
pricing caused by policies and procedures adopted over the past ten years. 

& Since June, wholesale prices for electrical power in California have 
increased on average 270% over the same period in 1999, resulting in over $1 
billion in excess?? payments for electricity. 

&Hot weather, aging power plant and transmission infrastructure, and 
dysfunctional bidding behavior in the wholesale power markets combined to 
drive prices up ... 

&Because of serious market defects and tight supply of electricity, 
purchasers of California power will likely pay billions more in electricity 
costs this year. Moreover, these price increases do not necessarily fund new 
investments in electricity supply or delivery reliability - they may flow 
solely to power producer profit margins. 

&Despite the Electricity Oversight Board's legislative mandate to oversee 
those institutions, we have been unable to obtain [bid] data. Nevertheless, 
... , we believe enough evidence of questionable behavior exists that the 
Attorney General should conduct an investigation into these statewide market 
practices, coordinating with other State agencies, including the PUC and the 
EOB. Such an investigation would provide the factual foundation that 
California policy makers and regulators need to recover any illegally 
obtained profits. 

&A momentous consequence of California's attempt to create a market in 
electricity is that the federal government now regulates California's 
electric system. Washington D.C. now controls pricing decisions directly at 
the wholesale level and indirectly at the retail level and, to the extent 
that supply incentives are correlated to prices, Washington, D.C. now affects 
California's ability to attract new investment in power plants. 

&Past administrations' willingness to cede the State's authority to the 
federal government combined with the legislative creation of two non-public 
supervisory organizations that have no duty to protect the public or consider 
the retail customer. The "Independent System Operator" (ISO) and the "Power 
Exchange" (PX), the nonprofit private corporations that operate the State's 
transmission system and control wholesale pricing policies, are governed by 
boards whose members can have serious conflicts of interest. Some of these 
board members or their companies financially benefit from higher prices in 
electricity markets. Neither of these private organizations is accountable to 
the State or its consumers .... 
? 

&Despite the federalization and the fragmentation of the State's electric 
services, the State of California should protect its businesses and consumers 
from cartel pricing; collusive behavior; inadequate power plant maintenance 
and lack of market planning for adequate electricity supplies. 

&California consumers and businesses deserve to know in advance - as San 
Diegans did not this summer - how and when the price of an essential service 
like electricity will double. California is now largely constrained by 
federal mandates from providing comprehensive retail price relief as long as 
wholesale prices remain so high. If California tried to re-impose a price 
freeze in San Diego now, federal regulators would likely prevent that 
action.? ... Short-term price relief, however, cannot resolve market gaming 
or fundamental wholesale pricing problems controlled by federal regulators. 

?&We have been precluded from obtaining the data necessary to know if the ISO 
and PX failed to detect manipulation and gaming on several fronts. We do not 
know how market players acted in price offering and bidding and scheduling. 
The FERC has just announced an inquiry into national pricing and energy 
market issues. California should not wait for national findings before it 
investigates California market practices. We recommend that the California 
Attorney General immediately subpoena relevant records and data to determine 
the pricing and offering behavior of market participants; the actions of the 
ISO and its board members; and the actions of generators in supplying 
California's energy needs. 

&Ten Actions to Consider or Act Upon to Prevent Current Electricity Problems 
From Spreading in 2001: ... 
? 
? 2. Create a California Energy Council, modeled on the National Security 
Council, to unify State action to resolve energy problems and to perform 
integrated energy planning; 

3. Ask FERC for extended wholesale price cap authority to moderate California 
wholesale market pricing; 

4. Ask FERC to recognize the defects in the California and western regional 
markets and find that no competitive market exists in California power 
markets; 
?... 
? ?8. Eliminate potential conflicts of interest in ISO/PX stakeholder boards; 

9. Improve California's ability to obtain ISO and generator data and enhance 
the State's enforcement capability for power plant maintenance; price 
manipulation and generation gaming, consistent with protection of proprietary 
business information; 

10. Provide the EOB with effective enforcement ability and additional 
oversight authority for the ISO and PX.


&Ten Issues to Consider or Act Upon Within the Next Six Months: ... 
? 4. Streamline state power plant siting procedures; consistent with 
environmental requirements, and prioritize applications to advance clean, 
BACT+ power plant proposals. 

5. Institute "use-it -or- lose-it" permitting power plant licensing and 
emissions credits rules to ensure power plants get built; 

... 

?8. Reform PX pricing protocols and structures to lower wholesale and retail 
prices and reduce excess profits8


I told you I don,t need to write a Burrito anymore.? The Democrats in 
Sacramento are doing that for me.? Welcome comrade. 

Things on the Island of California 
?@@@ The ISO invokes $250 price caps.? Duh! 

It is really hard to describe the drama of an ISO Governing Board meeting, 
especially when our favorite topic arises.? It seems the only time the Board 
becomes animated is when one of three issues are on the agenda: price caps, 
FTRs, and priorities for software enhancements. Otherwise, its pretty much 
hum-drum. 

+Round and +round we went, once again.? A few more forced votes tipped the 
scale in favor of the cap.? There were 15 yes votes, which included a forced 
yes vote from our friend Jerry Toenyes by order of Secretary of Energy Mr. 
Richardson. [Jerry, did you realize that the last letters of your name could 
be re-arranged to spell &NO ET YES8?? Kind of a french thing.] I,m sorry 
about that vote, Jerry.? You still go in my book as one of the brave and bold 
for standing up to that sort of intimidation for so long.? Your picture in 
the SF Chron said it all. 

The brave souls who stood tall and voted NO included David Parquet (Enron), 
Jan Smutny-Jones (IEP), Barbara Barkovich (CLECA), Caolyn Kehrein (CMA), Dan 
Kirshner (EDF), and Stacy Roscoe (Procter & Gamble).? Now, I must admit that 
Dynegy,s Greg Blue did help by voting a Texas No, spelled &A-B-S-T-A-I-N8.?? 
I have instructed Dynegy trader Dave Francis in Houston to work with Greg to 
correct that problem.? We,re going to work things out. 

The Energy F_hrer addressed the Board, again.? I didn,t mind that I only had 
a few brief, very brief moments to address the Board, and Herr (Hair?) Peace 
got over 20 minutes.? That didn,t bother me at all.? He did more damage to 
himself in 20 than I could do in 2.? He blasted away at everyone who opposed 
him.? He pined about Camden quitting the Board.? He said he knew how prices 
and markets work, that it isn,t the way those academic egg-head, FERC-loving 
economists tell you who pray to the gods of competition.? He lambasted WAPA 
for withholding generation to protect fish and wildlife (what was that all 
about?).? He predicted that on Thursday,s PUC meeting he and all the other 
powerful Democrats, Republicans and angry citizens of San Diego would demand 
that the PUC impose a rate cap on retail electric rates in San Diego that are 
just and reasonable (it didn,t happen).? And on and on and on.? This man is 
very delusional. He believes that Steve, and only Steve Peace can save the 
world.? He believes that political will trumps judicial, quasi-judicial, or 
independent Board actions.? This man makes relevant all the abstract musings 
of the philosopher Friedrich Nietzsche (1844-1900) ... The will to power, the 
?bermensch, the transvaluation of values, etc. 

But we are getting under (uber?) his skin, with the help of the press.? 
Wednesday afternoon I called Commissioner Dick Bilas to see if he thought 
whether the next day,s PUC meeting was going to be a roll over. Dick said he 
got a call from Peace, and that Peace said he would not come to the meeting.? 
Apparently, Peace had received a lot of press, and all of it bad. 

That,s the thin line of freedom which keeps tyranny at least one step away 
from our front door. 

?>>> Things at the throne of FERC 
?@@@ Amen for the Morgan Stanley Order 

And now, the good news.? You deserve this.? FERC gave the California market a 
little wiggle room last Friday.? FERC issued a last minute reply to the 
complaint by Morgan Stanley Capital Group relating to the ISO,s intent to 
lower the price cap.? FERC denied the complaint, but they didn,t waste time 
with an Order to simply deny a complaint.? FERC danced on the head of the ISO 
and pulled the bite out of the price cap. 

Here are some excerpts: 

&We accepted this [Amendment 21], not because it was a cap on sellers, prices 
but because it would promote order and transparency in the market by clearly 
telling sellers of the maximum price the ISO was willing to pay and allowing 
sellers to make informed economic choices on whether to sell in the ISO 
market or to sell elsewhere... 

& ... The ISO has no more or less ability to procure capacity and energy than 
any other buyer of these services ... If the ISO is unable to elicit 
sufficient supplies at or below its announced purchase price ceiling (because 
generators are free to sell elsewhere if they choose), it will have to raise 
its purchase price to the level necessary to meet its needs. ... Therefore, 
an increase in out-of-market (OOM) calls for generation may be necessary to 
maintain system reliability.? Because the current payment for OOM is not 
subject to a maximum purchase price, the resulting overall payments may be 
higher. 

&To the extent the ... ISO Board resolution contemplates implementing a 
directive that generators must bid their capacity into the ISO markets under 
any circumstances (e.g., when system load exceeds 38,000 MW), such a 
requirement is not permitted by our ... Order and the ISO tariff. ... Future 
implementation of the ISO Board resolution with regard to a requirement to 
sell would require significant revisions to the ISO market rules.? Such 
market changes could not become effective absent a corresponding amendment to 
the ISO tariff which would have to be filed under section 205 of the FPA.8 

Well. What do you think about that? 

Just wait.? Here is what the sleeping bear, Commissioner Hebert said in his 
concurring remarks: 

&Getting to the bottom of the problem, in my view, requires us to begin a 
proceeding to rescind our approval of the ISO as the operator of the 
California grid.? The record supports such a move. ... A memorandum to the 
ISO from a stakeholder who resigned from the governing board eloquently 
brings to our attention repeated attempts to undermine the independence of 
the ISO. The memorandum also thoughtfully outlines consequences to the 
markets of a return to +command and control., 

&Because these allegations come from a non-market participant, especially 
should we take heed.? We must also take notice of the public pressure on the 
Board to compromise its independence.8 

Amen, brother, amen. 

Odds and Ends (_!_) 

As you can imagine, this week, like an endless string of weeks before this 
has been interminable.? I get about three phone calls a day from press 
reporters, very little of which ever sees print.? My shtick is just too 
complex for casual readers.? But I do notice that the reporters are asking 
better questions.? The public is becoming more savvy.? The information flow 
is moving in our favor, and will disarm the forces of evil, in about 10 
years. 

I have other problems on my mind.? I am working on a new computer system.? 
Really, it,s just an upgrade of an older computer that is a bit faster than 
the laptop I tried to upgrade, very unsuccessfully.? As a result of the all 
the new hardware and software I purchased, my office looks like a war zone 
with an odd mix of PUC service copies, computer documentation, and diskettes 
laying all around. Quite a mess. 

Prepare for the future.? Our next general meeting is scheduled for Thursday 
and Friday, October 5 and 6 at Moro Bay.? Barb Ennis will prepare a blurb for 
us in next week,s Burrito about room reservations, timing, golf, etc.? Our 
guest speakers will include MSC Chairman Professor Frank Wolak who will talk 
on the subject of his choice, Ms. Irene Moosen of Grueneich Resource 
Advocates who will make a presentation on the distributed generation case 
before the PUC, and William Freddo of PG&E National Energy Group who will 
give us some education on operating a power plant inside the New England ISO. 

Now for your daily bread, provided this week by Dan Douglass.? Last week we 
had a joke about Catholics.? This week it,s agnostics. 
===================== 
An atheist was taking a walk thru the woods, admiring all that the accident? 
of evolution had created.? "What majestic trees!? What powerful rivers! What? 
beautiful animals!"? he said to himself. 

As he was walking alongside the river he heard a rustling in the bushes? 
behind him.? As he turned to look, he saw a 7 foot grizzly bear charging? 
towards him. He ran as fast as he could up the path.? He looked over his? 
shoulder and saw that the bear was closing in on him.? He tried to run even? 
faster, so scared that tears were coming to his eyes. His heart was pumping? 
frantically as he tried to run even faster, but he tripped and fell on the? 
ground.? He rolled over to pick himself up and saw the bear right on top of? 
him raising its paw to kill him. 

At that instant he cried out "Oh my God!" And time stopped. The bear froze.? 
The forest was silent.? The river even stopped flowing.? A bright light 
shone? upon the man, and a voice out of the sky said, "You deny my existence 
all? these years, teach others I don't exist and even credit my creation to 
a? cosmic accident, and now do you expect me to help you out of this? 
predicament?? Am I to count you as a believer?" 

The atheist, ever so proud, looked into the light and said, "It would be 
rather hypocritical to ask to be counted as a believer after all these 
years,? but could you make the bear a believer?" 

"Very well" said the voice. And the light went out, the river flowed, the? 
sounds of the forest continued, and the bear brought both paws together,? 
bowed his head, and said, "Lord, I thank you for this food which I am about? 
to receive." 
================== 

Amen.? And have a great weekend.? Oh, and thanks to all of you who sent me 
happy birthday wishes.? It was very much appreciated. 

KSB 
gba