P1258782360lGQwW

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• Stranded Benefits
• Mandatory utility-funded conservation
• Social cost dispatch
• Integrated resource planning
• What happens to these kinds of programs after
  restructuring?
• How does restructuring affect dispatch and
  investment decisions?
• How can restructuring states retain incentives
  for cleaner sources of power?

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• California
• Today
• Basics of CA restructuring plan
• Events of mid 2000 to mid 2001
• Factors contributing to price spikes
• Reactions of CA and FERC
• Tomorrow
• Diagnosis of market manipulation
• Implications for restructuring

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California Restructuring Plan

• Old System
• PGE SDEG SoCalEd
• Customers Customers Customers

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California Restructuring Plan

• New System
• Wholesalers/Generators
• CalPX
• PGE SDEG SoCalEd OtherRetailers
• Customers

wta bids
wtp bids
Customer choice of retailer
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California's Declared Staged Power Emergencies,
1998--May 22, 2001
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What happened? The perfect storm

• insufficient generation capacity?
• insufficient generation available?
• Hydro Outages
• Gen Cost factors gas/emissions rights
• transmission constraints?
• market manipulation?

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Issues affecting generation -- initially

• Capability decreased 2 percent from 1990-1999,
  while retail sales increased by 11 percent
• 10,000 megawatts of total capability out of
  operation due to forced and/or planned outages
• Unusually low water level, losing about 3,000
  megawatts of capacity from the Northwest

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Pacific Region Precipitation and Hydroelectric
Generation, 1996 - 2000
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Cost factors for generators

• Excess electric generation in summer caused some
  to use all available emission allowances for year
• Natural gas price increases and El Paso natural
  gas pipeline explosion
• Transmission Scarcity
• Transmission constraints limit the amount of
  electricity that can be moved between Northern
  and Southern California

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Caps and the Squeeze late 2000 PGE and SoCalEd
customers faced retail rate caps imposed by the
original restructuring plan. SDEG customers
cap had expired, so their retail prices went up.
Why the original retail caps? CA legislature
stopped this by imposing a cap for residential
SDEG customers. Wholesale prices gt Retail
prices, despite maximum buy side bid price of
250/MW imposed by CA PUC. Why the original
wholesale buy bid caps? ESPs began to default on
payments late in 2000. What would these events do
to prices?
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• Winter 2000-01
• Shortages/rolling blackouts Why?
• Generators ordered to sell into CA market. Fair?
• Feb. 2001 State takes over wholesale purchase
  obligation for PGE and SoCalEd. Why?
• April 2001
• PGE filed for Chp. 11 bankruptcy.
• FERC price mitigation plan reinforces mandatory
  supply order imposes system of caps during low
  reserve periods based upon prices during high
  reserve periods.
• Sept. 2001 end of retail choice in CA

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• By mid to late 2001
• State had purchased many transmission facilities
• Capacity crunch had diminished, due to increasing
  supply and decreasing demand
• Spot market accounted for much smaller portion of
  sales state made long term bulk power purchase
  sales on behalf of ESPs
• Unpaid debts on wholesale sales were piling up
  ESPs and CA charged manipulation of wholesale
  market by Enron and other sellers. FERC
  investigated.

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• Subsequently
• Refund proceedings
• CA claim 8.9 bln overcharges
• FERC 12/02 1.8 bln
• FERC 2003 approx. 3 bln
• Unpaid bills from CA buyers approx 3 bln
• Settlements with FERC
• CA long term power purchase contracts
• Path 15

Allegations of market manipulation by sellers
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