In light of the Commerce Committee Hearing and the FERC Hearing on the 11th 
and 12th, wanted to provide a quick synopsis of the CPUC Hearing in SD.

It was the same quasi-legislative format as the previous hearing.  Speakers 
were invited by the Commission and only the ALJ and the Commissioners could 
cross-examine the witnesses.  Commissioners Lynch and Wood presided.  Michael 
Kahn, chairman of the Electricity Oversight Board was there and participated 
in some cross-examination as well.

Speakers were:

ISO:  
Kellan Fluckiger, COO
Anjali Sheffrin, Director of Market Analysis
Frank Wolak, Chairman of Market Surveillance Committee

Cal PX:
David Jermain, former VP, Compliance, Audits & Reg. Affairs
Seth Wilson, 

South Coast Air Quality Management District:
Carol Coy, Deputy Executive Director

CPUC:
Harvey Morris, Principal Attorney

SDG&E:
Donald Garber

ISO's main message was that many factors contribute to the high prices in the 
wholesale market:

 1.  Demand growth over past two years at or around 5% (98-99, 99-00)
 2.  Lack of generation additions in entire west
 3.  Reduced imports of electricity from NW, due to low hydro and policy to 
retain water in spring.
 4.  Natural Gas price increases over 1999, at almost 2x's 1999 levels in 
August
 5.  Nox emissions trading at or around $40/pound
 6.  Increased underscheduling from June-August

ISO has concluded that the reduction in the price caps (from $500 to $250) 
have increased the overall cost of electricity, with the highest total 
cost/MWh ($180) experienced in August, relative to $167/MWh in June and $118 
in July.  Reason given is that the caps have reduced markup (could be 
interpreted as generator profit) in peak hours, but supply costs have been 
driven up in lower load hours.  

While ISO staff said they will seek an extension of its authority from FERC 
to be set price caps, also raised concerns about the affect any further 
reductions would have on the market.  They conclude that such a reduction 
would deter new investment,  preclude generators from recovering fixed costs 
of production, and increase dependence on OOM purchases (as a result of lower 
imports).

ISO staff will make a proposal to the ISO Board, October 6, to do the 
following:

1.  File for extension of price cap authority to FERC.
2.  Request FERC to institute mandatory forward contract requirement on 
generators for a significant portion of their capacity.
3.  CPUC should allow full peak requirements to be forward contracted and 
hedged by UDCs
4.  CPUC and state should promote price responsive demand programs
5.  Maintain sufficient planning reserves.

ISO Staff also stated that:

1.  Need to create disincentive for underscheduling for load and generation
 a.  Charge OOM cost to underscheduled load
 b.  Charge replacement reserve cost to underscheduled generation
 c.  Additional charge for real-time market transactions

2.  Attract and expedite new resources

MARKET POWER:

While the Commissioners spent the majority of the day picking apart the 
underlying reasons for the rise in prices, the conclusion of the hearing was 
President Lynch asking the ISO and PX to name names on who has been exerting 
market power.  Both the PX and the ISO said that it would be impossible to 
determine from the information they have.  Secondly, the analysis they have 
done show that no single market participant is consistently exhibiting the 
ability (opportunity) to exercise market power.  Therefore, at one point or 
another, nearly every market participant has market power.

Wolak suggested that in order to reduce the amount of market power in peak 
periods, require forward contracting OR increase profit incentives in 
off-peak period, where generators many times sell below short-run marginal 
costs.

No further quasi-legislative hearings are planned.