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	From:  "Pergher, Gunther" <Gunther.Pergher@dowjones.com>                      
     10/30/2000 06:09 AM
	

To: undisclosed-recipients:;
cc:  
Subject: DJ Cal-ISO Price Caps Prompt Concern Among Mkt Watchers


13:15 GMT 30 October 2000 =DJ Cal-ISO Price Caps Prompt Concern Among Mkt
Watchers
(This article was originally published Friday)
By Jessica Berthold
OF DOW JONES NEWSWIRES
LOS ANGELES (Dow Jones)--Market watchers and some California Independent
System Operator board members voiced concerns about Thursday's ISO vote to
impose hourly wholesale power price caps.
The vote's opponents say the caps may inhibit forward trading and could
affect the construction of new generation in the state. They also say the
vote should have waited until after the Federal Energy Regulatory Commission
releases its report on California's electricity woes Wednesday.
The price caps, effective Nov. 3 or as soon thereafter as possible, will be
set monthly and will vary based on ISO forecasted load, monthly gas prices
and unit efficiency.
The ISO will multiply the average closing price for natural gas over the
last three days of NYMEX Henry Hub futures contracts by a fixed measure of
generation efficiency at various load levels. For example, if the ISO's
forecasted load is 25,001-30,000, the fixed efficiency rate of 14,175 will
be multiplied by the natural gas price - say $6/mmBTU - to yield a rounded
price cap of $90/MWH.
Market sources, who asked not to be named, said that although the ISO filed
a proposal with FERC Oct. 20 requiring utilities to boost forward market
purchases, the forward market was reacting negatively Friday to the price
caps. The ISO appeared to be encouraging forward contracts with its FERC
filing but its latest vote is an about face, traders said.
"Traders are telling us they are pulling away from forward positions because
they don't know what's going on," said California Power Exchange spokesman
Jesus Arredondo. "On Monday to Thursday we traded 850 contracts and
yesterday we traded 175. Today's there's nothing. There's been one offer at
$59 per megawatt hour for five years and no one is touching it."
CalPX, which operates the state's day-ahead and block forward market, plans
to file a formal response to the ISO proposal with FERC. Market sources said
CalPX wasn't in support of the proposal.
Market watchers also said that if California ever needs to buy power out of
market, those prices will be higher than the cap. Over the summer, the ISO
spent a record $101 million on last-minute out-of-state power purchases last
summer.
"Those inflated out-of-market purchases are what drove the market's high
prices this summer," said one source close to the issue.
California wholesale electricity prices hit unprecedented levels last
summer, and customers in San Diego's fully deregulated market saw their
bills triple as a result.
ISO board member Mike Florio, who wrote the price cap proposal, stressed
that it was a temporary measure that would be terminated as soon as broader
market reforms were in place.
"This is a three-to-four month proposal and not something we are going to
deal with going into the peak period," Florio said.
Generators suggested that capping the market might be a disincentive for
those looking to build new generation in the state, and that the ISO
proposal was untimely given FERC's Nov. 1 release of a report on
California's electricity market problems.
"The ISO said in its (Oct. 20) filing that FERC needs to be that venue that
the wholesale market deals with and we agree with that," said Duke Energy
(DUK) spokesman Tom Williams.
Several ISO members who voted against the proposal also cited FERC's Nov. 1
report as presenting a possible conflict.
"What do I do if FERC comes out with an order contrary (to the caps) on Nov.
1?" said ISO President Terry Winter, who voted against the proposal.
Many board members didn't expect to vote on price caps at Thursday's
meeting, since a vote on broader market redesign proposals was postponed
until November.
"This is the wrong time to vote on this if we are not doing comprehensive
market redesign today," said board member Barbara Barkovich.
Consumer group The Utility Reform Network supported the proposal, saying
that action was needed to control the market immediately. Proposal sponsor
Florio is a member of TURN.
"The ISO has the responsibility to deal with what it can without waiting for
FERC. FERC needs a signal that the ISO is serious," said TURN president
Nettie Hoge.
Hoge also said that she was wary of arguments that the building of
generation will be stifled due to the caps, because the caps "are well
within a reasonable level."
"It's clear the market isn't functioning," Hoge said. "There's going to be
lots of debate about going outside the market versus command and control. I
don't think the discussion is even in that arena. We have a crisis. Those
who say it will get better on its own are living in a fantasy."
-By Jessica Berthold, Dow Jones Newswires; 323-658-3872;
jessica.berthold@dowjones.com
(END) Dow Jones Newswires 10-30-00
0815EST Copyright (c) 1998, Dow Jones & Company Inc


G_nther A. Pergher
Senior Analyst
Dow Jones & Company Inc.
Tel.  609.520.7067
Fax. 609.452.3531

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