THE FRIDAY BURRITO
"...more fun than a fortune cookie, and at least as accurate."

There is a hint of Autumn in the air.  I don't know if it's wishful
thinking, or if the seasons are really beginning to turn from our pale
summer into a Bay Area glorious Fall.  It's premature, I know.  A few
fallen leaves, the start of schools, slightly longer afternoon shadows
... I'm jumping the gun.  I can't wait for this summer to be over,
especially this summer.  The pounding never stops, and as I hear the din
of the cash register ringing with each climb in Southwest temperature, I
can barely keep track of all the hiccups which drive prices up: fires in
Montana restricting transmission paths, blown up interstate gas pipeline
in New Mexico, diminishing N-Ox credits for in-state power plants,
depleted inventory of hours of voluntary load interruptions for
commercial and industrial customers, credit limits restricting imports
of Canadian power into the Northwest and California, and BPA buying
about 1,000 MW to cover its short hydro position.

 I also get the willies every time another politician lambastes the
California restructured power industry.  I just want to end to the
summer, now, and start a two week Fall vacation ... anywhere, even in
Cleveland.

There are seven, count them, seven investigations into some aspect of
the wholesale power market out here.  Two days ago there were only six,
but FERC just added another yesterday in response to the Prez's
request.  That means FERC has two, the PUC has two, the State Attorneys
General has two (one on the ISO Governing Board, and one on the in-state
generators), and one by the Electric Oversight Board.  If you don't have
an ongoing study of the California Market, then you're not hip.

All of these investigations, save FERC's Section 206 Investigation, are
going to amount to near nothing.  A lot of wasted time and paper.  The
PUC and EOB studies have their conclusion sections all finished.  Now
they need some evidence to support their assertions.

And how are we holding up under all of this?  How are you doing?  I talk
to many of you throughout the week, and I know how frustrated you are.
I share your frustration.  You want to tell the public, the press, and
anyone in between the truth.  You want to lay out the facts.  You want
to show anyone who will listen that each interference into the market is
making things worse, not better.  The price caps, for example, are
damnable and screwing up the prices, much to the detriment of those
people for who price caps were supposed to be a protection against price
shocks.  Now they are receiving higher average prices.

The public isn't going to listen to anything longer than a sound bite.
And let's face it, when it comes to stellar public relations, our
industry is not known for turning in A+ performances, except for SCE.
Those guys seem to get their story in front of the public at every
turn.  I heard SCE is putting on their customers' bill, "Here is what
you would have paid if the rate freeze ended ....".  But many of us in
the new power industry, borne from the loins of either the natural-gas
industry or nuclear-power business, learned the hard way that the best
response to a public inquiry is a two-block head start in front of an
angry mob.  Keep your head down, shut your mouth, and this too shall
pass.

I don't buy that approach, at least not anymore.  That is, I don't
believe we have anything to hide, or of which to be ashamed.  What
electric restructuring is about is correct, beneficial to the public,
and in everyone's best interests.  Look at it this way, when they pat
the last shovelful of dirt on your final resting place, for what do you
most want to be remembered?  That you caved in to the political will of
others, or at a moment when you had the chance, you did what was right
instead of what was expedient?  I think the choice is easy, albeit laced
with sheer terror.  Those bland homilies I so diligently teach my kids
(e.g., tell the truth, do what is right, think of the big picture and
not just yourself) are a lot easier to speak than to live by.  So join
me and stand up for what you believe.  They can't take away your pride,
not yet.

Here is this week's line up.

>>> Things in the People's Republic of California
 @@@ Excerpts from FERC's Order on SDG&E Complaint
 @@@ The Development of a Super-Peak Block Energy Product

>>> The Mailbag: A Letter from My Friend, and A Response

>>> Odds and Ends (_!_)

 @@@ Finish the Story Contest
 @@@ October General Meeting
 @@@ What Makes Houston, Houston?

>>> Things in the People's Republic of California
 @@@ Excerpts from FERC's Order on SDG&E Complaint

President Clinton commented from the Rose Garden that good folks in San
Diego, retired, fixed-income, likely to vote for a Democrat, are making
choices between buying medicine or air conditioning their homes.  I call
this the Del Monica Beach lecture.  The Prez instructed the FERC to
investigate the situation in California, and FERC wasted no time.

In response to SDG&E's August 2 complaint, whereby the utility asked
FERC to impose a $250 price cap on generators in the region, the FERC
responded in a way that I was hoping to see several months ago.  The
FERC slammed SDG&E on their complaint for lack of merit, and the FERC
also initiated an FPA Section 206 Investigation into the wholesale power
market in California.

Here are some of the juicy excerpts from FERC's Order:

"In this order, ... , we are denying SDG&E's requested immediate
imposition of a price cap on all sellers in California.  However, we are
instituting consolidated hearing   proceedings pursuant to section 206
of the Federal Power Act to investigate the justness and reasonableness
of the rates and charges of public utilities that sell energy and
ancillary services to or through the California ISO and PX, and to also
investigate whether the tariffs and institutional structures and bylaws
of the California ISO and PX are adversely affecting the efficient
operation of competitive wholesale electric power markets in California
and need to be modified

"SDG&E concludes that the markets cannot be workably competitive if
sellers are able to exact prices that are considerably above levels that
would prevail in open competition, i.e., sellers are able to bid and
receive prices significantly above their marginal costs.  SDG&E also
argues that the hour-to-hour volatility in imbalance energy prices and
the erratic clearing price for ancillary services is an indication that
the market is breaking down when it is moderately stressed.

"While we find it appropriate to institute a section 206 hearing on
these issues, we cannot implement an immediate price cap of $250/MWh as
requested by SDG&E because there is no record before us to support such
an action.  ...  While the issues raised by this complaint are
important, the Commission has no basis to conclude that SDG&E's proposal
to place an immediate, arbitrary $250/MWh cap on the price that every
public utility seller of energy and ancillary services may bid into the
PX and ISO markets would satisfy this standard.  SDG&E has provided no
evidence to demonstrate that all potential sellers are able to exercise
market power, has not documented a single instance of a seller
exercising market power during times of scarcity, and did not attempt to
show that the conditions underlying the Commission's approval of
market-based rates for public utility sellers of energy and ancillary
services have changed.  Nor did it address specific market or
institutional  factors that may be causing rates to be unjust or
unreasonable.

"SDG&E asserts that the ISO's congestion management and market
structures are flawed and in need of overhaul. ... Furthermore, SDG&E
expresses its concern that, for a number of reasons, the congestion
management and market reform efforts being pursued by ISO stakeholders
will not produce  meaningful results.  SDG&E indicates that it is
prepared to work with the ISO to develop alternative reform proposals;
however, SDG&E's complains that the ISO stakeholder process has, in
SDG&E's judgment, been ineffective with respect to these issues.

"Various interveners contend that SDG&E's arguments are premature. ...
We agree with Interveners. ...  The reform efforts have been the subject
of extensive public review and comment and are nearing completion.
Accordingly, we reject SDG&E's arguments at this time.

"It is unclear whether SDG&E's failure to purchase hedging instruments
for its retail operations is due to state regulatory policies or its
business decisions.  A retail rate design that exposes consumers to the
volatility of commodity prices would be extraordinary, particularly when
consumers do not have the ability to receive or respond to price
signals.

"We are concerned that ... increasing level of market activity in the
real-time market raises significant reliability and economical concerns.
...  Historically, the ISO procures on a daily basis only the resources
needed for the operating day.  Not only does this procurement practice
put pressure on the grid operator to secure needed resources at the last
minute, but the practice is uneconomical.  Such spot-market purchases
are not subject to the ISO's  buyer's cap.  Furthermore, because the ISO
is the supplier of last resort for these services, when OOM calls are
made, suppliers realize that the ISO is in a must-buy situation.

"In an effort to address this problem, we direct the ISO to immediately
institute a more forward approach to procuring the resources necessary
to reliably operate the grid.  Specifically, the ISO should anticipate
the need for such additional resources based on  forecasted peak
periods.  We direct the ISO to factor these reforms into an analysis of
the need for and level of purchase price caps and to include this
analysis as support for any filing it makes to extend its purchase price
cap authority."

In closing, WPTF is an intervenor in the case, and we hope to be very
active in the case through testimony, cross examination, the filing of
briefs, and reply briefs.

>>> Things in the People's Republic of California
 @@@ The Development of a Super-Peak Block Energy Product

Several weeks ago, I discussed with the ISO their interest in developing
a new market for a block energy product that would be purchased in the
morning of a trade day, and be dispatched during the super-peak hours.
I challenged them to let the market participants develop this market
instead of the ISO doing the same.

At the August 1 ISO Governing Board meeting, I stated as the WPTF
position that we oppose price caps, but if the ISO Governing Board
insisted on going down the $250/MWH price cap route, we would do what
ever we could to help the situation and avoid the occurrences of Stage 3
alerts.  Whereas I didn't think about the conversation on super-peak
block markets as being relevant to  the remarks before the Governing
Board, it became painfully clear soon after that we could, and should
work with the ISO to develop a new market through either APX or the
California PX, or both, to bring some order to the otherwise chaotic Out
of Market system.

This week, WPTF and the ISO had a joint meeting whereby both sides
discussed the merits of a super-peak block firm-energy product, and how
it could be instituted.  The meeting at the ISO, at which WPTF had many
of its members who either have generation in the State, or import power
into California, was for market participants and the ISO to discuss how
to bring more order and price transparency to the ISO's out of market
calls. The ISO reported that this summer, to date, the amount of money
spent on Out of Market purchases was about $100 million.  Last year the
total cost of Out of Market purchases was $1.7 million.

APX and CalPX, in response to our earlier discussions with them,
presented their proposals at the meeting.  The discussions which ensued
during the course of the presentations focused on how the ISO might
utilize a product/service to reduce the manpower requirements currently
needed to satisfy its out of market telephone calls, typically on short
notice, and the interest on the part of market participants to make bids
into either the APX or CalPX's proposed system for a super-peak
firm-energy product.

There were no  commitments made by any party, simply a willingness to
work together to alleviate the problems associated with finding
sufficient electric power during high demand periods with greater
transparency, more participants, and greater market efficiency.

We'll keep you posted on our development of this market.

>>> The Mailbag: A Letter from My Friend, and A Response

Sometimes I share bites of our Burrito with fellow travellers, much as I
did last week when I sent my friend Mike Florio a copy of the story
called the Trial of Gow Jing.  Mike sent me a note that I would like to
share. He said I could.  I want you to read it and appreciate that there
are other people who share his view.  I also copied the response I sent
to Michael, a.k.a. Old Deuteronomy.

Michael wrote:

"I'm not going to attempt to complete your little melodrama [the
Gow-Jing story], but I did want to offer an observation.  In simpler
times, people knew the other people that they did business with, and
they typically lived in the same community.  If a merchant tried to
charge exorbitant prices for his products, even if he was the only one
in town who had the product in stock, he would face the wrath of his
fellow citizens.  This undoubtedly served as a constraint on such
behavior, even in the absence of a CPUC or FERC. Telling Mrs. Jones that
the loaf of bread she needs to feed her kids will cost her $50 would not
be a pleasant way to do business, and such things ordinarily did not
happen.

"In the modern global economy, of course, this personal aspect of doing
business has been almost completely lost.  And so has the restraint.  I
have no doubt that the folks who sell electricity are good people (jeez,
I know many of them), but they work in an environment where the end
results of their business decisions are invisible.  If Mrs. Jones can't
afford to run her refrigerator any more, that fact is at best dimly
perceived, and if so it is viewed as cause for some sort of social
program, not a reason why a merchant would alter his behavior.

"This is clearly not a case of socialism versus capitalism, because both
scenarios occur within the overall context of a capitalist system.  But
certainly something fundamental has changed, and not for the better in
my view.  Now everyone feels compelled to squeeze the last dollar out of
every transaction-- their jobs may even depend upon it-- and no one is
responsible for the end result.  Is this the kind of world we want to
live in???

"PUT THAT IN YOUR BURRITO AND SEE WHAT YOUR READERS SAY!  YOU CAN EVEN
BLAME ME, SO THAT YOU ARE NOT ACCUSED OF TURNING PINK IN YOUR MIDDLE
AGE.      Deut"

Okay.  It's in the Burrito.  And here is what I think.

You allude to the change in a world that was once "more personal" and is
now institutional.  You make the point that things are not better off if
for no other reason then the lack of personal accountability.  But I
don't think that in all cases the more personal world is lost.  It is
ever present, as I will argue below.  Second, your group embraces the
impersonal "efficiencies" when it is convenient.  Finally and most
importantly, where will your social-minded and like minded counterparts
be when competitive forces leap supply ahead of demand, which might
happen in a handful of years?

However, your essential point is not lost on me.  I do believe that
there are ways for generators and consumers to be good neighbors in
California.  I have a proposal below to which I would like to hear your
response.

First, though, the personal business touch is present in our economy.  I
exercise the restraint to which your story pines in many of my
consulting engagements which require financial give and take between
client and vendor.  It is simply smart business to do so.  I have been
the beneficiary of the same with my local bank when errors occurred in
my checking accounts, or when loan payments were made absent mindedly
late, etc., and the late fee forgiven.  However, much of our economy,
and certainly the trade of a commodity such as electricity requires the
use of markets.  Nameless and faceless, they do squeeze out all the
efficiencies which lead to lower prices, more innovation, and a sharing
of price risk with parties who are neither the ultimate consumer nor the
initial producer.  The producer and consumer get out of the risk
arbitrage and leave it to others who are more skilled and monied.

I find it ironic that TURN, then, is so insistent on arguing, as it has
done on many many occasions for the relaxation of market separation in
the ISO's congestion management reform.  Elimination of market
separation is nothing more than the impersonal forcing of parties to
execute trades on either side of a congested transmission path in the
name of market efficiency.  Lower prices for consumers.  Does it really
matter if it is done through person to person transactions, or through
markets?

Third, your story can be used to make an alternative point.  What
happens to the merchant in town when Wal-Mart moves into the next town
down the road?  All the faithful customers that your Merchant of
Vengeance was protecting suddenly migrate to a competitor with greater
inventory, more choice, and lower prices.  What do you say, then?  The
corollary for us is direct.  The new generation owners moved literally
billions of dollars into California, at risk, and took a chance.  It
paid off.  They succeeded as we all know this year, and probably will
next year, and so on.  But the 3,000 MW of new power plants under
construction in California, and the 3,000 MW under construction in
Arizona, and the over 16,000 MW of combined power projects in
California, Arizona, and Southern Nevada that are in line for permits
will change the financial landscape in a hurry once energized.  The
prices will soften, returns will be less cherry, and I really want to
know, where will today's accusers be when there is a shake out?
Consumers will reap that benefit, oh you best believe it. But the
alliances to which your opening story alludes simply misses that point.
You gotta make hay while the sun shines.

Now to my proposal.   Michael, I would be willing to work with you to
develop some kind of loan program for residential and small commercial
customers that would, in effect, reduce the economic hardship of higher
electricity prices.  I could imagine, although I haven't tested the idea
with any parties,  that a significant program could be crafted, possibly
secured by the credit of participating generating companies, and
executed by a commercial lending institution such as Bank of America.
Borrowers would pay a fair interest rate and the administrative fees.
It's simply smart business, not charity.  It's one way to amortize the
earnings which came about due to a circumstance of short supply relative
to the sudden growth of demand for power.

Maybe that is a step in the right direction, I don't know. One could
argue that it is no different than SDG&E implementing a level payment
plan for it's consumers.  True, it is no different, because in either
case the customer is paying for the loan interest and administrative
fees, and I consistently believe that a market for credit is more
efficient (am I getting impersonal?) than one instituted by a
monopoly.   Second, the security for these loans is provided by parties
other than the utility's customers.  Further, we wouldn't have to worry
about PUC oversight and prudence reviews.  We could make this work
quickly.

I will be very interested to hear your thoughts, and the comments of my
members.  Thanks for sending us your letter.

>>> Odds and Ends (_!_)

 @@@ Finish the Story Contest

Well, there was only one response, and that was from Carl Imparato.
Here is what Carl said,

"Am I missing something? Who is Gow-Jing supposed to represent? (Yes, I
get the pun in the name.  But is he also just an anonymous "everyman" or
is there someone in particular?)

"My first response to your question is that Gow-Jing simply replies
`Itai!' (You could look it up... I think it's Chinese for `it hurts!').
Then he takes out a concealed axe, goes on a rampage and kills
everyone.  But that's too realistic, so don't use that ending.  Instead:


"Ending:  Just as he was about to reply, a giant 500 foot wall of water
swept through the room, drowning everyone.  And they lived happily ever
after.  The end."

I haven't decided whether to name this response Carl's Gilgamesh Epic
(I.e., Noah and the flood), or Carl's Hydro Dream.  We'll leave the
contest open for another week.  Can't let $5 bucks go the only entry.
Where's the competition?

>>> Odds and Ends (_!_)

 @@@ October General Meeting

Barb Ennis, our event coordinator for our General Meeting wanted you
folks to know that the Inn at Morro Bay blocked a few more rooms for us
on Wednesday, October 4th (for the early birds) and of course Thursday,
October 5th. To date, 21 of the 24 rooms originally set aside in the
WPTF block are now taken.

Among the additional rooms, there are 2 rooms blocked with double beds
on Wed. & Thur. nights at $152.00 each and 6 rooms on both nights for
$89.00 each.  Folks, you better call the Inn at Morro Bay, telephone
800-321-9566.  Rooms should be requested under the name of the Western
Power Trading Forum.

Also feel free to call the Inn and book a room for Friday and Saturday
if you wish to stay over....ask for SHAWN.

For those who are in the golf, green fees are $28.00 plus $10.00 for the
cart.

Please RSVP me by E-Mail (baennis@ix.netcom.com) if you are attending
The Social Evening Dinner On Thursday Night ($45 per person, all are
invited) and also the luncheon on Friday (no charge) .... I must have an
accurate headcount.

Have a great weekend and see you at Morro Bay.......Barb

>>> Odds and Ends (_!_)

 @@@ What Makes Houston, Houston?

Dan Douglass of Arter and Hadden sent us the following item. Houston,
the unofficial home of the electric power industry, is a town you either
love or hate.  Here are some guiding principles offered by the Chamber
of Commerce of the 4th largest city to enable their many visitors to
cope.

   First you must learn to pronounce the city  name. It is YEWS-TUN and
it does not matter how people pronounce it in other places.

   Forget the traffic rules you learned elsewhere. Houston has its own
version of traffic rules. Never forget that downtown Houston is composed
entirely of one way streets. The only way to get out of center of town
is to
turn around and start over when you reach Dallas, Texas.

   All directions start with, "Go down  Westheimer..."

   Westheimer has no beginning and no end.

   It's impossible to go around a block and wind up on the street  you
started on. The Chamber of Commerce calls this a "scenic  drive".

   The 8am rush hour is from 6:30 to 9:30am. The 5:00 pm rush hour is
from 3:30 to 6:30 pm.  Friday's rush hour starts on Thursday morning.

   If you actually stop at a yellow light, you cannot be from Houston.

   Kuykendahl Road can only be pronounced by a native, so do not
attempt the phonetic pronunciation. People will simply tilt their heads
to the right and stare at you.

   Construction on the Gulf Freeway is a way of life, and a permanent
form of entertainment.

   Many bizarre sights can be explained simply by uttering the phrase,
" Oh, we're in Montrose!!"

   Construction crews aren't doing their job properly  unless they
close down all lanes except one during rush hour.

   If  someone actually has their turn signal on, it was probably left
on at the factory where the car was made.

   White haired men driving red or silver sports cars will not obey any
known traffic rule and cannot be expected to stop for red lights or stop
signs.

   All ladies with blue hair who drive Cadillacs or Lincoln
Continentals have the right of way.

   The above mentioned blue haired ladies also have a  legal right to
turn right from a left lane or to turn left from a right  lane. YOU HAVE
BEEN WARNED!

   Buying a  Houston street map is a waste of money since there is
absolutely no way that you can route yourself in such a manner as to
avoid major road construction.

   Houston natives are so rare that they are listed on the endangered
species list. The few remaining specimens are kept in a controlled
environment for their own safety.

   Sir" and "Ma'am" are used by the person speaking to you if there's a
remote  possibility that you're at least 30 minutes older than they are.

   "Sugar" is a more common form of  address than "Miss". So is
"Honey". Do not take offense. This is how southerners address grown
women.

   In Houston we drink Coca-Cola  and Dr. Pepper. It is rumored that
other soft drinks are sold here, but no one will admit to knowing anyone
who actually drinks them.  So don't ask for any other soft drink.

   What you need to know when arriving at Bush Intercontinental
Airport: Your arrival gate is at least 32 miles away from the Main
Concourse of any terminal.  Walking heels on your boots or walking shoes
are advised.

   Never honk your horn at another car in Houston traffic. The bumper
sticker that reads, "Keep honking, I'm reloading" is considered fair
warning.

=============

Have a great weekend, y'all.

gba
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