Message-ID: <11630583.1075858674478.JavaMail.evans@thyme>
Date: Wed, 25 Jul 2001 09:29:52 -0700 (PDT)
From: c..hall@enron.com
To: b..sanders@enron.com
Subject: CDWR unable to tie power costs to sales b/c it pools the power
 together as a portfolio.
Cc: tim.belden@enron.com
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Richard and Gary:

I thought you both might be interested to learn that CDWR was unable to est=
ablish the cost of power that it sold because it doesn't separately track t=
he purchase price and sales price for each megawatt.  It seems unreasonable=
 for the State to be insisting that marketers produce costs for power sold =
to California when the State does not or cannot track that data for its own=
 power purchases and sales.   I underlined the relevant passages in the LA =
Times and San Jose Mercury Stories below.

Regards,

Steve


--------------------
Surplus Power Sold at a Loss
--------------------

Electricity: Cool summer and effective conservation efforts result in exces=
s supplies. Industry officials say it's a routine move.

By NANCY VOGEL
TIMES STAFF WRITER

July 24 2001

SACRAMENTO -- Caught with an excess of electricity as a result of cool weat=
her and heavy conservation, the state government sold power at a loss appro=
aching $14 million in the first 16 days of July.

The loss amounts to roughly 3.5% of the total amount the state spent on pow=
er during that period.

To keep power flowing to 27 million Californians, the state purchased 3.5 m=
illion megawatt-hours at an average price of $118 per megawatt-hour, accord=
ing to the state Department of Water Resources. It sold off 177,000 surplus=
 megawatt-hours at an average price of $36.95 per megawatt-hour. Department=
 of Water Resources Director Thomas Hannigan disclosed the details in respo=
nse to an inquiry by Assemblyman John Campbell (R-Irvine).

The sales of surplus power "get to the issue of, do these people really kno=
w what they're doing? Are they really competent to be managing this to the =
lowest cost for the ratepayers?" Campbell said. "It reinforces to me that w=
e should get the state out of doing this as soon as practically possible."

Industry officials, however, say it is routine for utilities and electricit=
y companies to at times find themselves with more electricity than their cu=
stomers need. They either sell the power at a loss, work out an exchange of=
 power or give it away.

"It's not all that uncommon for utilities to be buying one day and selling =
the next," said one Pacific Northwest trader who asked not to be identified=
 because his company does not permit him to talk to reporters. He said a ru=
le of thumb in the industry is to match supply to demand within 1% to 2%, a=
lthough "5% on a load like California isn't that much."

Assemblyman Roderick Wright (D-Los Angeles), chairman of the Assembly utili=
ties committee, said he did not see a problem with DWR's power sales.

"Right now the summer is cool," he said. "If this had been a normal July, w=
e would have used all that power."

"The worm could have turned the other way."

Department of Water Resources spokesman Oscar Hidalgo said the state's crew=
 of 15 power purchasers found themselves selling a "very minimal" amount of=
 electricity in May. In June, more power was sold, but less than was sold i=
n July, he said. The department has not released those figures.

Department officials expect the sales to stop if temperatures heat up later=
 this week.

The water department was thrust into the role of buying 30% to 50% of the s=
tate's overall electricity in January after the state's major utilities bec=
ame so financially crippled by high wholesale electricity prices that energ=
y companies refused to sell to them.

The department has so far spent roughly $8 billion of taxpayer money purcha=
sing power that is sent to the customers of Pacific Gas & Electric, Souther=
n California Edison and San Diego Gas & Electric.

Hidalgo said the sales show that the water department has stabilized the st=
ate's electricity market. The average price the department has paid for a m=
egawatt-hour is falling, from $271 in May to $119 in June to $89 so far in =
July.

"If we were out scrambling for power right now," Hidalgo said, "the market =
would reflect that and adjust to it, and we would most likely be paying muc=
h more in overall purchases."

Campbell said he assumes the department sold its most expensive, marginal m=
egawatts of power. But Hidalgo said that is not necessarily so. The departm=
ent does not track what it paid for the power it sells, he said.

The department's statement to Campbell shows sales to 25 different companie=
s, including the federal Bonneville Power Administration, the Los Angeles D=
epartment of Water and Power, and several private energy companies that bou=
ght power plants from California's utilities under the state's 1996 deregul=
ation scheme. Those firms include Dynegy Corp., Reliant Energy, Mirant Corp=
. and Duke Energy.

Copyright 2001, Los Angeles Times


=09    Figures show state lost big on extra power  Posted at 9:53 p.m. PDT =
Monday, July 23, 2001  BY JOHN WOOLFOLK   Mercury News    State figures sho=
w California may have lost about $14 million this month selling surplus ele=
ctricity for less than it cost.  The Mercury News disclosed last week that =
some power was being sold at a loss. But the new figures provide the first =
indication of just how much excess power the state bought in its desperate =
effort to avoid blackouts -- and how cheaply some of that power was sold wh=
en it turned out not to be needed.  A Republican lawmaker said Monday the l=
oss also shows Democratic Gov. Gray Davis' energy policies are needlessly c=
osting consumers.  ``This whole thing is a mess,'' said Assemblyman John Ca=
mpbell, R-Irvine, who requested details of the state's surplus power sales.=
 ``The government needs to get out of the power business before it costs Ca=
lifornians even more money.''  A state spokesman didn't dispute the $14 mil=
lion figure outright but said it is an approximation based on average price=
s and that the actual loss probably is less.  ``It's a number I'm sure he l=
ikes very much, but it's definitely an estimated number, and it could be fa=
r lower,'' said Oscar Hidalgo, spokesman for the state Department of Water =
Resources.  Campbell responded that the loss also could be higher.  The sta=
te has spent $415 million on power so far this month.  State officials last=
 week confirmed that cool weather and consumer conservation have left Calif=
ornia holding more power than it needs. The revelation was a stunning turna=
round for a state that months ago was paying top dollar for power, expectin=
g shortages this summer.  Price that was paid  The state bought 3.5 million=
 megawatt-hours of electricity for July at an average price of $118 per meg=
awatt-hour, according to a response Friday by the Department of Water Resou=
rces to Campbell's inquiry. The state has sold 178,000 surplus megawatt-hou=
rs in July at an average price of $37, the department said.  Based on those=
 average prices, the state paid $21 million for the surplus power, which it=
 sold for $6.5 million -- $14.5 million less than it cost.  A more precise =
calculation of the state's loss is difficult because purchased power is acq=
uired at different times and prices and pooled as a ``portfolio.''  Purchas=
es included long-term contracts that averaged $138 per megawatt-hour as wel=
l as cheaper spot-market buys.  State officials last week said they were se=
lling surplus at $15 to $30 a megawatt-hour, while some traders cited uncon=
firmed sales as low as $1.  Hidalgo noted that the surplus sales represent =
just 5 percent of California's July purchases, which totaled $415 million. =
The $6.5 million from sales will help lower the state's power bill, he said=
, adding that utilities routinely sell some extra electricity.  ``Despite t=
he fact that we're in somewhat of a surplus, any power-buying operation in =
the world is going to have to plan for these types of situations,'' Hidalgo=
 said. ``It's not unique, and in fact it's normal operating procedure for a=
ny utility.''  Other Western utilities, including Portland General Electric=
 in Oregon, have said they, too, are selling some surplus power at a loss a=
nd describe it as a cost of doing business.  The suppliers buying the state=
's surplus electricity on the cheap include the big out-of-state energy com=
panies that the governor has called price-gouging ``snakes.'' Among them ar=
e Duke Energy, Dynegy Power and Marketing, El Paso Power Services, Mirant, =
Reliant Energy and Williams Energy.  `Best bid' taken  Hidalgo said the sta=
te took the best offers it could find.  ``It's only reasonable to get the b=
est bid you can,'' he said.  Campbell said the $14 million loss is troublin=
g because ratepayers or taxpayers will have to cover the cost, whereas a pr=
ivate utility could be forced to eat the expense if regulators determined i=
t was unreasonable.  State officials say what's more important is that the =
overall cost of power is dropping, from an average daily tab of $64 million=
 in May to $25 million this month, in part because the state has so much po=
wer.    Contact John Woolfolk at jwoolfolk@sjmercury.com <mailto:jwoolfolk@=
sjmercury.com> or (408) 278-3410.  # # #=09=09
=20


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