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Western Price Survey / Archives

April 18, 2001
Did PG&E's Bankruptcy Drive Prices Higher?

When California Governor Gray Davis alleged that power prices paid by the state rose nearly 60 percent following Pacific Gas & Electric's bankruptcy filing, most reporters had to take the claim at face value. With the state refusing to provide information about purchases made by the Department of Water Resources, there is no way to independently test Davis' statement that generators and suppliers are charging a "credit penalty" that pushed the daily cost of power bought by DWR from $45 million to $73 million.

In the void left by the demise of the California Power Exchange, the only relevant--if incomplete--source of information on state power purchases has been from the California Independent System Operator. However, a daily update of energy prices for power purchased on Cal- ISO's imbalance energy markets and via emergency dispatch orders was silenced last week at the request of the state. "We are discussing with the state the release of pricing and timing of release," was all a Cal-ISO spokesperson would say when asked about the notice of "temporary suspension" posted on the site this week.

The last entry for the page on April 11 showed that Cal-ISO had purchased 1,124 MWh at an average $135/MWh through its capped market clearing price bids.

As-bid energy purchased on the imbalance energy market came to 1,406 MWh at $347/MWh, and the out-of-market (OOM) purchases totaled 42,874 MWh at an average $520/MWh. This latter figure, indeed, was the highest posted OOM price since February 19, but the cost of purchases $22.3 million was only slightly higher than average for the past two months.

OOM prices from April 7-11 ranged from $$394/MWh to $520/MWh, which was higher than the $299/MWh to $370/MWh range seen April 1-6. However, daily imbalance energy prices did not vary appreciably either before the Chapter 11 filing, in the $225 to $330/MWh range, or after in the $228 to $347/MWh range.

A review of bilateral energy prices throughout the region indicates that the week of April 9-13 experienced a significant boost in prices at Mid-Columbia, the California/Oregon Border and NP15 hubs. Because of the transmission bottleneck caused by the outage of the DC Intertie, southern hub prices were substantially lower, however.

CALIFORNIA ENERGY MARKETS' Western Price Survey noted the rise last week, as did the Dow Jones Index prices for various Western hubs. Prices plummeted sharply heading into this week because the Intertie went back into service Sunday night, Northwest loads diminished, and market activity was light to non-existent while many utility schedulers were in Reno for a meeting of the Pacific Northwest Power Pool group (see the preset prices for the week so far in the chart below).

To some power traders, this suggested that other factors were far more influential than PG&E's filing and that last week's price hikes were not specifically directed at DWR. Gary Ackerman, executive director of the Western Power Trading Forum pointed to the continuing problems of drought in the Pacific Northwest setting last week's high prices. "If anything, I think the generators and marketers would take solace in the fact than bankruptcy brings order to an otherwise volatile situation," Ackerman told the Los Angeles Times.

Others also doubted a cause and effect linkage, citing Cal-ISO's Stage Two alert early last week and the continued outages by independent producers, who are only partially back in business because the checks sent by the utilities may not be enough to cover their costs of production. "PG&E's bankruptcy had nothing to do with the prices," a Southwestern utility power scheduler told CEM. " The credit problem has been the same whether the utility is in bankruptcy or teetering on the edge."

While analysts might be able to make a claim that California is paying a crisis premium, that has been true all year. Information is limited to whatever Cal-ISO has publicly revealed since February, but it is apparent that daily imbalance energy prices have been running as much as $50 to $75/MWh higher than bilateral prices at NP15.

There is no precise correlation as the imbalance prices and volumes vary widely each day. And there is not real comparison between day- ahead prices reported for NP15 and the day-of and real-time purchases that Cal-ISO is forced into. However, in terms of numbers, the OOM prices seem to correlate most closely to daily non-firm, or real-time, prices at COB as reported by Dow Jones.

DWR has not revealed its day-ahead buys at all, making direct comparisons with bilateral market prices impossible. Given the context of Davis' claims-as part of his attempt to pitch the Legislature on his deal with Southern California Edison and his office's not-so- subtle attempts to discredit PG&E for seeking bankruptcy protection- the allegations may be more political than reliable.

Meanwhile, DWR has indicated it will backstop power purchases made by Cal-ISO, but only to the extent the energy is "reasonably priced," according to Ray Hart, director of DWR. The Federal Energy Regulatory Commission has ruled that Cal-ISO's purchases have to be backed by a creditworthy party [affirmed and clarified April 6 in EL00-95]

A vaguely worded memo distributed by Cal-ISO to market participants seemed to indicate that either DWR or "another qualified party" would be guaranteeing payment for ancillary services or imbalance energy purchases-however, but no on appeared sure about the criteria for reasonable prices or the value of the vague assurance [Arthur O'Donnell].

Western Electricity Prices
Mid-Week April 18, 2001
Hub Peak (heavy) Off-peak (light)
Alberta Pool (C$) 97.8 65-82
Mid-Columbia 230-280 200-220
COB 235-250 180
NP 15 235-265 160-180
SP 15 225-230 110-120
Palo Verde 215-232 103-110

Archives of the Western Price Survey for the past year are also available online.

The Western Price Survey is excerpted from Energy NewsData's comprehensive regional news services. See for yourself how NewsData reporters put events in an accurate and meaningful context -- request a sample of either or both California Energy Markets and Clearing Up.

Please contact with questions or comments about this site.

Contact Shauna O'Donnell, editor with questions regarding Price Survey Content.

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