FYI.

Best,
Jeff
----- Forwarded by Jeff Dasovich/NA/Enron on 02/13/2001 10:46 AM -----

		

CERA: Study Says Long-Term Power Contracts `No Solution'
  
02/12/2001 
Dow Jones Energy Service 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 


HOUSTON -(Dow Jones)- Californians will likely see 20 hours of rolling 
blackouts spread across the state this summer, as short-term solutions to the 
state's ongoing power crisis come too late, according to a report from the 
Cambridge Energy Research Associates. 


CERA, an international energy consulting company, estimates California will 
be short 5,000 megawatts this summer, which will force the state's 
independent grid operator to declare some stage of emergency for 200 hours.


However, if consumer rates are allowed to increase before summer, 
Californians will likely cut consumption by 1,500 MW, or one-third of the 
predicted shortfall, Larry Makovich, a senior director of CERA, said Monday 
at a press briefing in Houston. 


A California Public Utilities commissioner agreed with the report. "It will 
be bad," said Richard Bilas. "We've had no additional generating capacity, 
and until we have price signals, it won't get better." 

     
CERA experts said long-term steps California must take to create a 
functioning wholesale market include: establishing a capacity requirement and 
payment method; streamlining plant siting and approval; resolving the credit 
crisis the state's utilities face; ending the consumer rate freeze; avoiding 
tinkering with market rules; creating a positive investment climate, and 
restructuring the regional transmission grid. 

In addition, CERA said California utilities should move to portfolio buying 
over the next three years, rather than contracting long-term supplies now. 


"Long-term contracts aren't a solution," Makovich said. He added that 
utilities could contract for huge volumes of power that will be above the 
market price in as little as 18 months, as natural-gas drilling increases, 
improving tight gas supply. 


One of the problems that led California to restructure its power industry was 
the large amount of power under contract under federal law at above-market 
prices. 


With long-term contracts being discussed at $70.00 a megawatt-hour "we run 
the risk of creating a bigger problem," should natural gas prices retreat 
over time to around $3.00 a thousand cubic feet, Makovich said. 


In addition to the obvious move to improve the state's power supply by 
allowing construction of new generating units, the CERA study urged the state 
to take several short-term steps to help reduce supply problems this summer, 
including: expanding load curtailment programs; encouraging conservation; 
providing flexible emission restrictions; coordinating plant outages on an 
emergency basis, and providing for flexible hydroelectric facility operations.


"The biggest problem is that we are running out of time," said Steve Kean, 
executive vice president at Enron Corp. (ENE), at the briefing on the first 
day of CERA's five-day energy conference in Houston. 


While the state Legislature has taken steps to restore the credit situation 
facing California utilities, the recent disclosure that the Department of 
Water Resources isn't buying all the power the state needs "isn't a good way 
to keep the lights on," said Joe Bob Perkins, president of Reliant Energy 
Inc.'s (REI) Wholesale Group, which owns generation in California. He called 
the credit situation "increasingly fragile." 


And while California's governor and lawmakers stepped in when the two largest 
California utilities appeared headed for bankruptcy, Bilas said a bankruptcy 
proceeding might be a way to end rate freezes for California consumers - an 
unpopular move that other parties have been unwilling to forcefully pursue. 


"A bankruptcy judge will say rates have to go up, costs have to be cut," 
Bilas said. "It's a way to say rates have to go up, but I didn't do it." 

   -By Eileen O'Grady; Dow Jones Newswires, 713-547-9213;
eileen.ogrady@dowjones.com


 

  
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