fw california desperate attempts avoid rate increase cera alert fyi original message webmaster cera com enron sent monday february 05 2001 4 38 pm insights cera com subject california desperate attempts avoid rate increase cera alert title california desperate attempts avoid rate increase url http www 20 cera com eprofile u 35 2241 california desperate attempts avoid rate increase february 1 2001 california assembly approved california governor signed new law intended secure power supplies california legislature meeting since early january special extraordinary session 8 address power market crisis state new law represents first significant piece legislation bill ab 1 establishes new mechanism purchasing power state businesses consumers whether mechanism works depend chiefly whether limited revenue source used pay power collected state investor owned utilities ious current retail rates cover wholesale power market costs incurred state law reflects obsession california lawmakers avoiding rate increase rather focusing underlying flaws california market structure ab 1 ushers several important changes california market structure also contains several key provisions capture political mood state highlights bill include power buying authority transferred responsibility purchasing power customers california ious transferred california department water resources cdwr california utilities continue operate schedule remaining generating facilities contracts difference utilities total load sum resources referred utilities net short 8 amount supplied cdwr amount energy varies 5 000 25 000 megawatts mw depending time year time day utility plant availability utilities recently performed function buying energy california power exchange px however cdwr buying electricity behalf ious since mid january near bankruptcy southern california edison sce pacific gas electric pg e threatened disrupt supplies customers cdwr state agency manages water reservoirs transportation systems state cdwr uses enormous amount electricity transport water across california provides critical load shedding capability independent system operator iso addition cdwr reservoirs generate power cdwr thus well integrated state electric grid past executed large complicated energy purchase arrangements supply customers california utilities portfolio transactions intent ab 1 allow cdwr execute portfolio contracts stabilize cost power utilities customers cdwr january 2 2003 execute contracts cdwr take title power thereby acting clearinghouse issued request bids seeks variety terms including monthly annual two year three year longer cdwr may also enter options thus although cdwr role intended temporary contracts executes could extend many years power munis cdwr may purchase power behalf california municipal utilities municipal utilities election new payment scheme cdwr entitled portion existing utility rates pay cost purchased power interest bonds administrative expenses payment stream equal difference generation component currently embedded utility retail rates averaging 0 07 per kilowatt hour kwh utilities costs run generation plants costs bilateral qualifying facility contracts costs ancillary services cdwr share retail rates referred california purchase adjustment cpa clear whether cpa cover wholesale power market costs current prices multiyear power contracts may lie cpa addition investors believe cpa inadequate cover costs entire program may abandoned new bonds bonds issued secure power total amount bonds issued may exceed four times cpa state transfer 500 million general fund jump start program begins immediately seed money bond proceeds must recovered cdwr california utilities customers municipal utilities opt new residential rate freeze california public utilities commission cpuc prohibited increasing residential customer rates completed paying outstanding obligations locks recent 9 percent residential rate increase indefinitely governor gray davis thus keeps pledge increase rates retail competition help secure stable payment stream new bonds ab 1 enables cpuc prohibit utilities retail customers choosing alternative electricity provider cdwr obligations paid although cpuc yet act action would effectively halt competitive retail markets state duration cdwr program taxpayer protection ab 1 directs new bonds clearly state neither faith credit taxing power state california pledged payment principal interest bond 8 thus bonds secured payment stream utility rates assets affected cdwr granted neither ownership control utility assets ironically authority granted cdwr california utilities essentially requested last summer sought stabilize electricity prices executing portfolio transactions utilities never provided sufficient authority execute term contracts addition utilities experience perform function cdwr rather aligning retail rates wholesale electricity prices california sidestepped issue simply transferring electricity purchasing function sce pg e still left contend uncollected costs past energy purchases although longer incur costs associated buying power current wholesale market charging frozen retail rates utility liquidity crisis resolved clear whether law prohibition rate increases residential customers achieved law silent rate increases commercial industrial customers providing potential path recovering higher expected costs alternatively cdwr could conceivably find contracts sufficient duration low enough price rate pledge met contracts would lock today retail rates long period time ab 1 one steps state officials hope restore power system california stable footing key tasks remain california wholesale market structure helped cause supply crisis ensuring profitable possible build generation california remains unchanged term contracts cdwr likely sign provide mechanism mainly existing generators lay risk sufficient encourage build sufficient new facilities addition california siting permitting process remains largely unchanged state must still address need expedite development new power plants ab 1 provide recovery uncollected past wholesale energy costs california utilities state negotiating deal utilities may involve transfer generation transmission assets state however utilities achieved recent court victories may pave way court directed recovery costs recent audits indicate sce pg e recovered stranded costs early 2000 triggered end respective rate freezes legal showdown utilities state issue may inevitable end follow url full report come shoot rapids us ceraweek 2001 shooting rapids strategies risks energy future houston february 12 16 2001 information register please visit http www 20 cera com ceraweek e mail category alert cera knowledge area western energy make changes cera com account go forgot username password go http www 20 cera com client forgot electronic message attachments contain information cambridge energy research associates inc cera confidential may privileged unauthorized 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