F.Y.I.
                      
  E-Commerce; Section H 
  BUSINESS TO BUSINESS 
  Step Right Up and Buy a Megawatt! 
  By MATTHEW L. WALD 
    
  09/20/2000 
  The New York Times 
  Page 15, Column 1 
  c. 2000 New York Times Company 

  MANY Web sites scream about what they will sell you for next to nothing, or 
less. But how
  about a site that pays you not to buy?

  A strange notion, but one that has more solid economic underpinnings than 
many of those
  desperate give-it-away dot-coms. Then again, the commodity in question is 
not the typical
  stuff of e-commerce transactions, like a plane ticket from Cincinnati to 
Nashville next
  Thursday or a vintage Barbie doll or 20,000 widgets of a certain shape. 
This promising new
  business is using e-commerce for a commodity that absolutely everybody 
needs:
  electricity.

  As it turns out, one kilowatt may look like another, but its price may vary 
by a factor of
  more than 100 in a single day. At night a kilowatt-hour -- the amount of 
electricity needed to
  light 10 100-watt bulbs for an hour -- may sell for a penny or two, because 
most of the
  generating capacity is unused. But on a hot afternoon, in places where the 
market is
  deregulated, the same amount of power could cost $1 or $5, or even more.

  Traditionally, though, utilities charge most customers pretty much the same 
price for the
  kilowatt-hour no matter what they pay to buy it or if they generate it 
themselves. Even
  companies with time-of-day rates are charging a price that varies by only a 
few pennies
  from peak to off-peak.

  But as California approached a summer of tight electricity supplies this 
year, Pacific Gas
  and Electric started an e-commerce marketplace where customers could be 
paid not to
  buy. In theory, the system would work with any customer, but it is only 
practical with big
  consumers, mostly businesses, because otherwise the number of transactions 
becomes
  hard to manage.

  As the state danced on the edge of rotating blackouts, the company quickly 
applied to
  regulators for permission to expand its program, called E-Bid. The system 
works like this:
  every afternoon, the utility gets an estimate of what power will cost on 
the wholesale market
  the next day. When the price is high, the utility notifies big customers 
that have signed up
  for its program, alerting them to log on to a secure Web site.

  There, according to Ronald K. Lowe, a company spokesman, the estimated 
price is
  posted. If the customer, generally a factory, is willing to cut its 
consumption 20 percent
  from its normal level, then it accepts the bid, and the utility pays the 
customer the posted
  price, minus the normal retail cost per kilowatt-hour. If the bulk price is 
$250 a
  megawatt-hour, for example, that makes electricity 25 cents a 
kilowatt-hour, compared with
  a typical price to the factory of 5 cents or so. For every kilowatt-hour 
that the factory does
  not use on the next day, the company pays 20 cents.

  The transaction has two functions. It cuts the risk of the grid running 
short of power and
  causing a blackout. And by reducing the peak demand, it takes a few buyers 
out of the
  market and makes the price lower for the remaining buyers. As the summer 
ended,
  proponents of this kind of marketing said that the unanticipated price 
swings, especially in
  places like San Diego, where some customers faced bills that had tripled, 
showed the
  necessity for making hourly prices obvious to electricity users, so that 
they would not
  blithely continue with normal consumption patterns at times of 
extraordinary price spikes.

  But the California program is still small; on one tough day this summer, 
July 31, 29
  customers participated, cutting demand by 40 megawatts, compared with a 
peak demand
  of 21,000 megawatts.

  Pacific Gas and Electric charges customers $600 to enter the program and 
requires that
  they be able to cut demand by at least 500 kilowatts, which is enough to 
run about 100 big
  houses. But it has applied for permission to cut the entry fee to $100 and 
take applicants
  who can cut demand by only 250 kilowatts.

  Such transactions are only possible through electronic commerce, but by 
setting just one
  price in a 24-hour period, P.G.& E.'s system is hardly taking full 
advantage. Wisconsin
  Electric Power began a more flexible system this summer in which it invites 
big customers
  to log on to a site, where it offers a price per kilowatt-hour not used. If 
it does not attract
  enough bidders to meet its needs, it can post a new bid price a few minutes 
later.

  Such transactions could apply the market forces that already exist at the 
wholesale level to
  the level of the electricity user, possibly even a homeowner.

  ''There's been a whole lot of debate over the years as to whether or not an 
average
  consumer will ever shift consumption based on price principles,'' said 
Scott A. Weiner, a
  senior vice president of Sithe Northeast, an independent power producer. 
''On the other
  hand, people who run large office buildings or factories can get those 
price signals in a very
  strong way,'' said Mr. Weiner, a former environmental commissioner for New 
Jersey.

  BUT, he said, at the moment, there is a supply curve -- a changing level of 
the amount
  available, depending on the price offered -- but no real demand curve, 
because the buyers
  do not know what the price is and thus cannot respond. Demand is therefore 
not affected
  by price.

  ''In the absence of a demand response, nobody can ever say, 'The price is 
too high, I'm not
  going to pay that,' '' Mr. Weiner said. ''As load response programs come 
into development,
  it's clear the Web will play a very vital part of making that real and 
accessible.''

  A second form of e-commerce is emerging on a business-to-business model, 
and it's one of
  the few forms that the government has required. It is called Oasis, for 
Open Access
  Same-Time Information System, ordered by the Federal Energy Regulatory 
Commission.
  Oasis gives companies that build free-standing power plants a way to market 
their power
  and for companies that consume electricity a way to see the market. Oasis 
systems are
  increasingly operated by new entities called Independent System Operators, 
which have
  been formed on the East Coast and in California to run the transmission 
grids that were
  formerly controlled by electric utilities.

  The systems vary from place to place, but are supposed to show the price of 
electricity,
  sometimes broken down by location, to take account of transmission 
bottlenecks.

  At the California Independent System Operator, William H. Simmons, the 
manager of
  market applications, development and support, said that some aspects of 
electricity trading
  existed years ago on electronic bulletin boards. But the ability of users 
to identify available
  transmission links and schedule their use depended on the Web. ''It could 
not have
  happened if it were not for the Internet,'' he said. The Independent System 
Operator works
  with the California Power Exchange to arrange delivery of the power that 
generators and
  customers contract for on the exchange.

  Both Oasis and programs like E-Bid have the potential to adjust electricity 
use to reflect
  costs, experts say, and that would be one way to hold down peak demand and 
thus make
  the system less prone to overload.

  Eric Hirst, an energy consultant in Oak Ridge, Tenn., and a former 
scientist at the national
  laboratory there, speaking at a conference in Washington this spring on 
reliability problems,
  said the result would contrast with the former pattern of electricity use. 
When people know
  the price of a product they are consuming, they behave differently, 
economists say; in the
  case of electricity, they will consume it in relation to its seasonal price 
or even hourly price.

  As Mr. Hirst said, ''When people used to pay 5 cents a kilowatt-hour, it 
didn't matter to
  them whether electricity was free or $2 a kilowatt-hour.'' 

  Graph: ''Lights Out'' Californians use so much electricity that the state 
is flirting with
  blackouts. And because of deregulation , prices are sharply higher, 
especially in peak
  periods. Now, utilities are paying some big customers to cut their 
consumption during
  those periods. Below, the California Power Exchange's output and prices for 
one day last
  June. Graph shows output compared to price. (Source: California Power 
Exchange) 


                                                  

  Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 

  
Report: US Transition To Competitive Pwr Markets Muddled

09/20/2000
Dow Jones Energy Service
(Copyright (c) 2000, Dow Jones & Company, Inc.)

(This article was originally published Tuesday) 


WASHINGTON -(Dow Jones)- The U.S. electricity sector is mired in a "prolonged 
and muddled transition" from
regulated monopolies to competitive markets, and the political arena offers 
little hope of fixing the problem,
according to the authors of a new report from Cambridge Energy Research 
Associates and Arthur Andersen.

The report, "Electric Power Trends 2001," paints a picture of inefficiently 
structured and balkanized power markets
hampered by inelastic demand and a gridlocked power grid. 

With myriad special interests involved in framing the debate, politicians at 
neither the state nor the federal level are
likely to resolve the problems anytime soon, said Cambridge Energy's Lawrence 
Makovich and Arthur Andersen's
Jon Wierda. 

"Unfortunately, the power industry right now is muddling through," Makovich 
said. "There isn't an effective political
process to sort this out." 

"We don't see this as something that's going to have a quick fix," agreed 
Wierda. 

The solution to the problem is "expert design," rather than the political 
process, Makovich said. 

The report assesses the status of electric industry competition two years 
after California became the first state to
deregulate and open up its retail power market. 

And with California's ill-designed and flawed market restructuring causing a 
headline-grabbing power-supply crisis,
there is an increasing risk that a backlash will cause policymakers to 
re-regulate the industry, Makovich said. 

Already a half-dozen states have moved to slow down previously approved plans 
to open up power markets to
competition, Makovich said, citing New Mexico, North Carolina and Oklahoma as 
among those. 

"There are right ways and wrong ways to put a competitive market together," 
he said, critical of the "serious flaws"
in California's approach, which contributed to a dearth in investment in 
generation and transmission capacity. 

The report identified a number of what it deemed surprises in the wake of 
California's first-in-the-nation
deregulation experiment. 

Among them, the report cited: 

- A patchwork quilt of restructured markets has developed, the result of the 
failure of Congress to issue a top-down
restructuring mandate providing "immediate and sweeping changes." As of 2003, 
only half of U.S. electricity
consumers will have a choice among competitive power providers, the report 
found. 

- In states where customers do have a choice among competitive providers, 
they are choosing not to choose. "Less
than 1% of electric customers switched from a traditional supplier in 1999, 
even though more than 20% of retail
customers could choose among alternative power suppliers," the report found. 

- The lack of investment in transmission interconnections has contributed to 
balkanized power markets with "sharp
locational price differentials," the report said. 

- Volatility in power markets once deemed abnormal is rapidly becoming the 
norm, despite flourishing competitive
spot markets for wholesale power. 

- This market volatility has prompted what could become "an electric supply 
tsunami," as proposals have been
advanced to build 240,000 megawatts of generation capacity, an amount 
equivalent to one-third of the existing
capacity in the U.S. 

- Transmission capacity has declined and bottlenecks aren't being resolved, 
contributing to increased threats of
blackouts and brownouts. The Federal Energy Regulatory Commission's order on 
regional transmission
organizations puts the issue at "center stage," the report said. "However, 
the order is not a bold move to confront
gridlock." 

Many of the surprises identified in the report are interwoven with one 
another. 

For instance, the potential for supply to overwhelm demand, represented by 
the large number of new power plant
proposals, is exacerbated by the economics of the industry that provide an 
incentive to keep older plants operating. 

There are 40,000 megawatts of new power plant capacity now under 
construction, and another 30,000 megawatts
for which developers are seeking permits to build, Makovich said. Even with a 
50% failure rate, that represents two
to three times the amount needed, he said. 

And the surprise doubling in natural gas prices over the past year 
complicates those development plans, since 93%
of the planned projects involve gas-fired plants, the report said. The report 
attributed the doubling in gas prices to a
lack of coordination between investments in natural gas supply and power 
generation. 

"High gas prices make old plants all the more valuable," said Makovich. 

Further, the surprising value of divested power plants, many of which are 
more than 30 years old, and which sold for
as much as four times book value, has resulted in utilities' stranded 
investment being much less than anticipated. 

The gridlocked transmission network complicates the "misalignment 
geographically" of much of the planned power
plant development, Makovich said. He noted that California, where there is a 
severe supply crisis, hasn't built a new
plant in a decade, while Texas is overbuilding. 

Makovich credited ill-designed markets with the failure of retail customers 
to switch power suppliers. 

A key component of California's supply crisis was the "well-intentioned" 
decision to impose a rate freeze for retail
customers until the state's three investor-owned utilities paid down their 
stranded investment, Makovich said. 

But without retail customers receiving a price signal allowing them to react 
to growing market volatility, there was no
demand response, and the volatility was exacerbated. 

The California market design left San Diego's consumers subject to 
spot-market pricing just as the supply crisis
caused by the price freeze erupted, he said. 

"The companies with active management able to react to surprises are the 
companies that will survive" the
transition, said Wierda. The "tsunami" of power plant investment will require 
a portfolio approach to asset
management, he said. 

Successful companies will be headed by chief executive officers who act as 
"chief risk officers," he said. 

-By Bryan Lee, Dow Jones Newswires; 202-862-6647; bryan.lee@dowjones.com




Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 


                           
  THE WALL STREET JOURNAL / CALIFORNIA 

  What's News: California 
    
  09/20/2000 
  The Wall Street Journal 
  Page CA1 
  (Copyright (c) 2000, Dow Jones & Company, Inc.) 

 Escaping Rate Freeze

  PG&E Corp. is banking on the proposed sale of its extensive Northern 
California
  hydropower operations to help it get out from under a consumer-rate freeze 
that the
  company says has cost it $2.2 billion this summer. The San Francisco-based 
company's
  utility unit, Pacific Gas & Electric Co., wants to sell the 4,000-megawatt 
hydroelectric
  system -- the largest network in North America -- to an unregulated fellow 
affiliate. Such a
  move would generate upward of $2.8 billion in cash and allow the utility to 
pay off its
  so-called stranded costs, principally expensive nuclear-power plants. Once 
that happens,
  the utility said in filings with the U.S. Securities and Exchange 
Commission, it intends to
  seek permission from state regulators to end the consumer-rate cap. Under 
the state's
  1996 electric- deregulation law, PG&E would then be free to raise rates and 
recoup
  losses caused by this summer's spike in the wholesale electricity price.

  

                              
  Metro; Metro Desk 
  COMMUNITY NEWS / COVERING ORANGE COUNTY'S 33 CITIES COSTA MESA 
  Jennifer Kho, (949) 574-4275 
    
  09/20/2000 
  Los Angeles Times 
  Orange County Edition 
  Page B-5 
  Copyright 2000 / The Times Mirror Company 

  Representatives of Costa Mesa and Santa Ana businesses will meet for lunch 
today to
  discuss electricity conservation and the possibility of power outages.

  The South Coast Metro Alliance will present a meeting titled "If the Power 
Goes Out: A Hot
  Topic as Temperatures Increase," from 11:45 a.m. to 1:15 p.m. at the Westin 
South Coast
  Plaza, 686 Anton Blvd., Costa Mesa.

  Presentations will include information about the availability of 
electricity, rolling power
  outages, the impact of the electricity situation on businesses, 
deregulation legislation and
  conservation efforts.

  Information: (714) 435-2109. 


                                                  

  Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.