price caps - - - - - - - - - - - - - - - - - - - - - - forwarded by vladimir gorny / hou / ect on 11 / 01 / 2000
03 : 39 pm - - - - - - - - - - - - - - - - - - - - - - - - - - -
from : tim belden 10 / 27 / 2000 05 : 40 pm
to : john j lavorato / corp / enron , dave delainey , mike swerzbin / hou / ect @ ect ,
robert badeer / hou / ect @ ect , sean crandall / pdx / ect @ ect , tim belden / hou / ect @ ect ,
jeff richter / hou / ect @ ect , diana scholtes / hou / ect @ ect , tom alonso / pdx / ect @ ect ,
mark fischer / pdx / ect @ ect , john m forney / hou / ect @ ect , paul choi / sf / ect @ ect ,
john malowney / hou / ect @ ect , holli krebs / hou / ect @ ect , greg wolfe / hou / ect @ ect ,
chris h foster / hou / ect @ ect , stewart rosman / hou / ect @ ect , kim ward / hou / ect @ ect ,
debra davidson / pdx / ect @ ect , tim belden / hou / ect @ ect , lester
rawson / pdx / ect @ ect , john zufferli / cal / ect @ ect , james d
steffes / na / enron @ enron , mary hain / hou / ect @ ect , christopher f
calger / pdx / ect @ ect , dave parquet , phillip k allen / hou / ect @ ect , vladimir
gorny / hou / ect @ ect , monica lande / pdx / ect @ ect , elliot mainzer / pdx / ect @ ect , tim
heizenrader / pdx / ect @ ect , cooper richey , stephen swain / pdx / ect @ ect , susan j
mara / sfo / ees @ ees , steven j kean / na / enron @ enron , mark palmer / corp / enron @ enron
cc : debra davidson / pdx / ect @ ect
subject : price caps
the following summarizes recent price cap events in california . i think that
i have most of it right . if there is anything wrong or missing please let me
know . please don ' t share the attached spreadsheet with anyone outside of
enron .
regards ,
tim
new cap specifics
on 10 / 26 / 2000 the iso board passed a motion by a vote of 13 - 10 to implement a
new price cap methodology .
the new methodology will become effective 11 / 3 / 2000 or as soon thereafter as
can be implemented . caiso staff has indicated that it will be difficult to
achieve that start date . they have not yet indicated what an achievable date
might be .
the new price cap methodology will remain in place until :
comprehensive market changes have been implemented and the market has proven
to be workably competitive under a variety of load conditions .
either ferc or the iso board orders its removal .
cap prices will be based on the average nymex l 3 d settlement average and the
following heat rate table :
load level heat rate 4 . 00 gas example cap
40 gw $ 250 / mwh $ 250 / mwh
caps will be rounded up to the nearest $ 5 / mwh increment .
demand bids and demand responsiveness programs are exempt from these caps .
the iso will post the price caps for each load level at least 48 hours prior
to the beginning of each calendar month . based on the iso ' s two day - ahead
system load forecast , the iso will post hourly caps at least 24 hours prior
to the hour of delivery .
ferc context
ferc has delegated cap authority to the caiso until 11 / 15 / 2000 .
the iso has asserted that they don ' t need ferc authority since it is a bid
cap rather than a sales cap . ferc regulates sales , not purchases , of
electricity and therefore can regulate sales prices but not purchase prices .
the iso has filed with ferc for an extension of the price cap authority .
ferc has to rule on the filing by 11 / 18 / 2000 . ( note that this is 3 days
after their authority expires )
ferc will release its proposed order on 11 / 1 / 2000 based on the results of its
206 investigation of the california wholesale power markets . we don ' t know
what they will find or what they will propose .
the proposed order will have a 30 day comment period , after which ferc will
likely issue a final order . ferc will be accepting oral comments on
11 / 9 / 2000 in washington . enron still has to determine who will provide oral
comments .
many companies have filed at ferc advocating or opposing a litany of price
caps , cost based rates , and market redesign recommendations .
it is likely that the price caps approved by the iso board will go into
effect . how long they will remain in effect will depend on whether ferc
extends the iso price cap authority and whether the final order stemming from
the current 206 investigation stipulates a specific price cap policy .
impact of price caps
the attached spreadsheet contains a table of likely maximum monthly prices at
different gas price levels . we think that this is the highest that markets
would clear since it assumes that each hour clears at the cap . it is hard to
say whether actual prices would clear significantly lower than the cap
because we don ' t know whether sellers will offer below the cap or at the
cap . the assumptions behind our analysis are detailed in the bullets below .
take actual historical loads from 1999 and 2000 .
calculate implied price cap for each hour using actual historical load , new
price cap methodology , and a range of gas prices .
divide historical hours into peak and off - peak buckets .
calculate average price for each month for peak hours and off - peak hours .
for example , we have two years worth of data for the months of january
through september . each month has approximately 400 hours . for january
through september , we took approximately 800 observations for each month ( 400
from each year ) and calculated a simple average of all of the individual
observations .
we created a peak table and an off - peak table . the table shows the
calculated implied cap based off of the acutal loads at varying gas prices
for each month . this value represents what the month would clear at if each
hour cleared at the cap ( based on historic loads ) . while any given hour
could be above this value , our calculation estimates the likely monthly
average cap value !
the blue shading indicates what the caps would be given current ( 10 / 27 / 2000
nymex ) forward prices . the yellow shading indicates those forward power
prices which are in excess of the proposed cap .
price caps
- - - - - - - - - - - - - - - - - - - - - - forwarded by vladimir gorny / hou / ect on 11 / 01 / 2000
03 : 39 pm - - - - - - - - - - - - - - - - - - - - - - - - - - -
from : tim belden 10 / 27 / 2000 05 : 40 pm
to : john j lavorato / corp / enron , dave delainey , mike swerzbin / hou / ect @ ect ,
robert badeer / hou / ect @ ect , sean crandall / pdx / ect @ ect , tim belden / hou / ect @ ect ,
jeff richter / hou / ect @ ect , diana scholtes / hou / ect @ ect , tom alonso / pdx / ect @ ect ,
mark fischer / pdx / ect @ ect , john m forney / hou / ect @ ect , paul choi / sf / ect @ ect ,
john malowney / hou / ect @ ect , holli krebs / hou / ect @ ect , greg wolfe / hou / ect @ ect ,
chris h foster / hou / ect @ ect , stewart rosman / hou / ect @ ect , kim ward / hou / ect @ ect ,
debra davidson / pdx / ect @ ect , tim belden / hou / ect @ ect , lester
rawson / pdx / ect @ ect , john zufferli / cal / ect @ ect , james d
steffes / na / enron @ enron , mary hain / hou / ect @ ect , christopher f
calger / pdx / ect @ ect , dave parquet , phillip k allen / hou / ect @ ect , vladimir
gorny / hou / ect @ ect , monica lande / pdx / ect @ ect , elliot mainzer / pdx / ect @ ect , tim
heizenrader / pdx / ect @ ect , cooper richey , stephen swain / pdx / ect @ ect , susan j
mara / sfo / ees @ ees , steven j kean / na / enron @ enron , mark palmer / corp / enron @ enron
cc : debra davidson / pdx / ect @ ect
subject : price caps
the following summarizes recent price cap events in california . i think that
i have most of it right . if there is anything wrong or missing please let me
know . please don ' t share the attached spreadsheet with anyone outside of
enron .
regards ,
tim
new cap specifics
on 10 / 26 / 2000 the iso board passed a motion by a vote of 13 - 10 to implement a
new price cap methodology .
the new methodology will become effective 11 / 3 / 2000 or as soon thereafter as
can be implemented . caiso staff has indicated that it will be difficult to
achieve that start date . they have not yet indicated what an achievable date
might be .
the new price cap methodology will remain in place until :
comprehensive market changes have been implemented and the market has proven
to be workably competitive under a variety of load conditions .
either ferc or the iso board orders its removal .
cap prices will be based on the average nymex l 3 d settlement average and the
following heat rate table :
load level heat rate 4 . 00 gas example cap
40 gw $ 250 / mwh $ 250 / mwh
caps will be rounded up to the nearest $ 5 / mwh increment .
demand bids and demand responsiveness programs are exempt from these caps .
the iso will post the price caps for each load level at least 48 hours prior
to the beginning of each calendar month . based on the iso ' s two day - ahead
system load forecast , the iso will post hourly caps at least 24 hours prior
to the hour of delivery .
ferc context
ferc has delegated cap authority to the caiso until 11 / 15 / 2000 .
the iso has asserted that they don ' t need ferc authority since it is a bid
cap rather than a sales cap . ferc regulates sales , not purchases , of
electricity and therefore can regulate sales prices but not purchase prices .
the iso has filed with ferc for an extension of the price cap authority .
ferc has to rule on the filing by 11 / 18 / 2000 . ( note that this is 3 days
after their authority expires )
ferc will release its proposed order on 11 / 1 / 2000 based on the results of its
206 investigation of the california wholesale power markets . we don ' t know
what they will find or what they will propose .
the proposed order will have a 30 day comment period , after which ferc will
likely issue a final order . ferc will be accepting oral comments on
11 / 9 / 2000 in washington . enron still has to determine who will provide oral
comments .
many companies have filed at ferc advocating or opposing a litany of price
caps , cost based rates , and market redesign recommendations .
it is likely that the price caps approved by the iso board will go into
effect . how long they will remain in effect will depend on whether ferc
extends the iso price cap authority and whether the final order stemming from
the current 206 investigation stipulates a specific price cap policy .
impact of price caps
the attached spreadsheet contains a table of likely maximum monthly prices at
different gas price levels . we think that this is the highest that markets
would clear since it assumes that each hour clears at the cap . it is hard to
say whether actual prices would clear significantly lower than the cap
because we don ' t know whether sellers will offer below the cap or at the
cap . the assumptions behind our analysis are detailed in the bullets below .
take actual historical loads from 1999 and 2000 .
calculate implied price cap for each hour using actual historical load , new
price cap methodology , and a range of gas prices .
divide historical hours into peak and off - peak buckets .
calculate average price for each month for peak hours and off - peak hours .
for example , we have two years worth of data for the months of january
through september . each month has approximately 400 hours . for january
through september , we took approximately 800 observations for each month ( 400
from each year ) and calculated a simple average of all of the individual
observations .
we created a peak table and an off - peak table . the table shows the
calculated implied cap based off of the acutal loads at varying gas prices
for each month . this value represents what the month would clear at if each
hour cleared at the cap ( based on historic loads ) . while any given hour
could be above this value , our calculation estimates the likely monthly
average cap value !
the blue shading indicates what the caps would be given current ( 10 / 27 / 2000
nymex ) forward prices . the yellow shading indicates those forward power
prices which are in excess of the proposed cap .