From: foothill@lmi.net
To: charlotte@wptf.org
Date: 2001-02-23 00:37:00+00:00
Subject: WPTF Friday What is Electricity Burrito

THE FRIDAY BURRITO 

How many of you believe in telekinesis? Raise my hand... 

Last week I was in a rare mood.? Before I wrote last week's Burrito, I spent 
the better part of Thursday afternoon with my wife sipping wine in Napa 
Valley.? Considering the volume of e-mail in response to last week's edition, 
I should do more drinking, and less worrying.? But I do worry.? For example, 
my wife wants to buy a new car, and this makes me think about one of my 
favorite lines, "Get a new car for your spouse - it'll be a great trade!"? 
But I haven't told her that because she has a fairly decent left jab; 
typically to my head. I drive a 1993 Ford Taurus that has 50k miles.? It 
looks like hell, and gets me to where I want to go.? My wife wants a new 
Jaguar, top of the line, faster than a bullet.? I was telling this story to 
our WPTF counsel, Dan Douglass, who asked, "I don't get it.? You are driving 
a beat up old Ford, and your wife is getting a new Jaguar?? How does that 
work?"? It's not too hard to explain.? You see, my wife works in Palo Alto, 
about 5 miles from our house, whereas I operate the world headquarters of 
this pirate trade association from my "home" office.? Each work morning, we 
like to arrive at our respective offices at the same time ( in about 3.5 
seconds.? Now if that makes sense to you, then maybe you can explain how and 
why the State of California thinks it can grow 1000 MWs of peaker generation 
from seed to flower in five months. 

None of the above has much to do with the electricity crisis, but it is a far 
more enjoyable conversation.? In fact, this week needs a good slug of humor. 
Therefore, I have expanded the Odds & Ends (_!_) section to include more 
stories and jokes.? We deserve it. 

I get about six calls a day from newspaper reporters, and they always ask me 
at the outset a tough question, "How are you?"? I'm never sure.? All the 
other questions are easy, but the How-Are-You question usually trips me up. 
One of our members called me and asked if I had heard about Steve Peace's 
quote placing the Texas State Flag on top of the California State Capital?? I 
had, but I discouraged the caller from sending Peace a Texas Flag as a 
prank.? I suggested, instead, sending the Senator a pair of boxer briefs with 
the emblem of Texas as the pattern.? We could put a note in the box, "Don't 
put your ass in Texas."? Does anyone have a connection on where we can get 
the goods? 

Our Governor and his staff are actively negotiating the purchase of the 
transmission systems from the state's three utilities.? Today the LA Times 
reported that PG&E is being obdurate, whereas SCE and SDG&E are being helpful 
in the negotiations.? Why does this sound familiar to me?? Most people say 
the negotiations are stalled.? The Governor says he will announce a deal 
today, this Friday.? The Governor and the rest of the world never seem to be 
on the same page. 

In the meantime, I am learning all about pre-petition credit committees, and 
how they operate.? My hopes are modest for a clean solution to the financial 
woes of the California market.? On the other hand, consider all the new 
things I am learning.? For example, the difference between a secured and 
unsecured creditor has become quite clear.? If you hold a mortgage bond, then 
you are a secured creditor.? If you are an electric generator or marketer who 
sold to the ISO or to the PX, then you are unsecured.? If you have a picture 
of a utility executive (think male) coming out of a motel room with women 
other than his spouse, then you are a secured creditor.? If you are a 
consumer, taxpayer, and a voter, then you are screwed. As one financial 
advisor told me, there are only two sources of revenue to make up the 
shortage of money: rate increases and the sale of assets.? Then the advisor 
said, think of the money from those funding sources like water at the top of 
Yosemite Falls.? As the money cascades down like falling water, secured 
creditors are near the top and get very wet.? Unsecured creditors are near 
the bottom, and might only get some mist in their face. It all depends how 
much water is running over the precipice. 

If the state doesn't offer "enough" money for the assets, then I expect the 
unsecured creditors will be like Yosemite tourists at the bottom of the Falls 
after a dry summer.? The mist spray will be a figment of one's imagination.? 
If the state condemns the transmission assets, then there will be a long and 
protracted court settlement regarding the fair market value of the assets.? 
Not a good outcome if you were expecting to get paid soon. Alternatively, if 
the state said to all the generators, "How about 50? on the dollar for each 
dollar we owe you?", I doubt there would be many takers. 

The secured creditors, by the way, are going to be patient, so it seems.? The 
bond underwriters place billions of dollars of bond issues, and they are not 
too excited about upsetting the State of California.? Could get in the way of 
future business because the state does issue quite a lot of bonds, and the 
underwriting fees are good.? So, I don't expect the bond-holders to pull the 
trigger anytime soon. 

If you thought I was drawing a conclusion based on the discussion above, then 
think again. A conclusion is the place where you rest because you got tired 
of thinking. 

Here is this week's menu. 

Things in the People's Republic of California 
?@@@ LA Times Poll Shows We Have Met the Enemy, and It Is Us 
?@@@ APX Opens Discussions on a New Transmission Market 
?@@@ Some Nasty Legislation 

Responses to Last Week's Burrito 

Jobs and People 

Odds & Ends (_!_) 
=================== 

Things in the People's Republic of California 
?@@@ LA Times Poll Shows We Have Met the Enemy, and It Is Us 

Last Sunday, the LA Times published the results of a poll they conducted on 
579 Californians, all over the state.? I encourage you to read the survey.? 
It's available at http://www.latimes.com/news/state/20010218/t000014901.html 
.? The bottom line is that Californians are mixed up about the electricity 
crisis in ways that I could have not predicted. 

For example, the Governor gets the highest marks relative to all other 
players.? His approval rating has gone up from January (29% approval rating) 
to 49% in February!? However, the 16% approval rating of the PUC is the 
lowest among the Gov., the legislature, the utilities, and even President 
Bush. The PUC is a tool of the Governor, but apparently that is a secret only 
known to the several thousands of us in the regulated power business (There, 
there Ms. Lynch.? They really love you, but they just don't understand you.). 
No telling where merchant generators and power marketers might have placed 
had our names been on the list, although I am sure it would be at the low end 
of the curve. 

More than half of those surveyed do not believe there is an actual shortage 
of electricity in California!!!!? The response to that issue was the same 
last month, and has changed very little.? Can someone explain this attitude 
to me?? I don't get it.? What do you have to do to convince Californians that 
we are short on capacity? Thirty days in a row of Stage 3 alerts doesn't do 
it.? I do not believe that anyone reading the LA Times, say, on a regular 
basis for the last month would conclude that there is no electricity 
shortage.? That means few people are reading newspapers for their 
information.? The rest of the folks get their information from TV, word of 
mouth, comic books or (.? Stunning result. 

Oddly enough, the public doesn't think too highly of long-term power 
contracts, very little about nuclear power, but they do favor, by a margin of 
three out of four, more thermal power plants. They would be willing to see 
such facilities built and operating in their own communities. 

In summary, the Gov. is up, the Legislature down, the shortage is 
non-existent, we need more power plants, there is a bailout of the utilities 
but that is okay, and people are conserving more than ever.? Is it any 
wonder, then, that the legislation we see emanating from the State Capital is 
so mixed up.? We are mixed up. What are you going to do about us? 

Things in the People's Republic of California 
?@@@ APX Opens Discussions on a New Transmission Market 

Automated Power Exchange (APX), now under the helm of new CEO John Yurkanin 
held a one-day seminar on the development of a new market to replace the now 
defunct PX adjustment bid market.? Adjustment bids, for those of you that do 
not trade or schedule in California, are economic signals to the ISO about 
one's willingness to adjust your schedule to satisfy transmission constraints 
at various transmission bottlenecks on the ISO's grid. APX has provided us 
with a thoughtful instrument for managing transmission congestion.? I 
attended the meeting, and my take away was that APX is proposing an energy 
market that allows different parties to be matched for the purpose of 
adjusting energy deliveries on either side of a transmission constraint.? It 
looks very much like the InterSC Adjustment Bid market that market 
participants so desperately wanted but never received from the ISO.? The 
beauty, here, however, is that all the InterSC adjustment bids fall under one 
portfolio, APX's, that allows the ISO to maintain the market separation 
constraint. 

Another benefit provided by APX's new market is the scheduling of RMR units.? 
John Stremel of APX told us that the CAISO can contribute to the APX market 
if there is a feature to instruct the RMR units.? The ISO could place their 
orders through the APX market if the RMR units are willing to submit 
adjustment bids in the same.? So doing would give much needed, and now lost 
price transparency. 

Nothing is free, except grief and heartache, and we all have enough of that.? 
APX needs funders to get their market off the ground.? I have heard several 
people grumble about the sales pitch, but let's face it.? We have been 
complaining for years that the PX was forced on us, the ISO's CONG model was 
forced on us, and the RMR dispatch was forced on us.? Now that for the first 
time we have an opportunity to exercise choice, I find it ironic that people 
are fumbling over the dollars.? The way the ISO is currently handling 
congestion management, with no or few adjustment bids, wreaks havoc on the 
energy markets.? APX is at least giving us a chance to fix that, and do more. 
? 

If you support the APX market in concept, then call John Stremel and tell him 
408.517.2120, <jstremel@apx.com>.? If money is a problem, then call him and 
tell him that too.? Let's get creative and demonstrate to those who doubt our 
ability to pull ourselves up by the bootstrap that we are able and willing to 
do so. 
? 

Things in the People's Republic of California 
?@@@ Some Nasty Legislation 

On the heels of the major pieces of legislation enacted in the last few 
weeks, we have the "me too" bills that are absolutely nauseating. Here are 
short summaries of two legislative turds that simply demonstrate what can 
occur when you have too many law makers taking on too few crises. 

SB 39x (Speier - D) - This bill would make facilities that have been deemed 
exempt wholesale generators by FERC become public utilities subject to CPUC 
jurisdiction. It would authorize the CPUC to ensure that generators located 
in California are operated in a manner that assures their availability to 
maintain reliability.? It would allow the CPUC to issue orders and directives 
as it deems necessary to accomplish this.? It would authorize the CPUC to 
prevent the exercise of market power by prohibiting economic or physical 
withholding.? The bill would also authorize the CPUC to prescribe inspection, 
maintenance, and operating practices and procedures for any generator to 
ensure the public health and safety , reliability and adequacy of the system. 

AB 60x - Herztberg - D) - This bill would require as a condition of receiving 
a CEC certification (for new or re-power) the applicant to offer to sell to 
California IOU's, Municipal utilities, or DWR, at just and reasonable cost 
based price, electrical power generated from the facility.? It would also 
prohibit the operation of the facility until a maintenance and outage 
schedule has been approved by the CEC.? A violation of this would be a 
criminal act. 

Responses to Last Week's Burrito 

Always helpful and friendly, Ms. Sheryl Lambertson from PPL Montana (Butte) 
wrote to me about my idea to send California's teen population to Montana.? 
She said, "I personally invite your son to spend the summer with me.? 
However, 6 million teenagers in a state with a population of less than a 
million!!!!!? I think we could potentially have power shortages though I'm 
sure Montana would do a great job of managing them.? I think we can take one 
more teenager but we'll leave it at that." 

Phil Muller of SCD Solutions offered the following in response to Dr. Davis' 
Cure for What Ails Us, "Now that our distinguished governor has finally 
announced his plan to save the utilities by taking over their transmission 
systems in exchange for paying some of their operating expenses, I can see 
the long term plan.? First, continue to stall resolution of the credit 
situation while generators continue to sell to the ISO with no immediate 
prospect of getting paid.? Second, cap QF payments at the "just and 
reasonable" price of $67/MWh.? Third, offer to "bail out" all the generators 
by having the state pay a portion of what they're owed in exchange for 
turning their power plants over to the state.? It looks like Gray learned 
business from John D Rockefeller.? Force your competitors' prices below cost 
until they're forced to sell out to you.? Once you own everything you can set 
your own just and reasonable prices depending on whether you're running for 
election or not.? This shouldn't be a problem since the state is not subject 
to anti-trust laws." 

Long-time friend Bill Metcalfe in Salt Lake City offered the following 
response to the WPTF seven-point solution.? He wrote, "Price is always a 
factor for the individual consumer and some commercial establishments who can 
exercise discretionary conservation but may only discourage/encourage 
industrial expansion.? Price must reflect the pure mechanics of supply and 
demand.? Therefore, the health of the California economy is closely linked to 
the ability to build capacity that will yield a price reflective of our 
desires for industrial competitiveness and growth. 

"The more we move to State control and the Governor's plan, the more 
difficult this all becomes and the costs - well.... 

"The Dedicated Rate Component (DRC) should provide the necessary incentive 
for consumer conservation.? Industry may just close up shop when seeing this 
and considering the future. 

"As you said, "(this) is like a hungry monster that chews up politicians and 
spits them out after sucking the political marrow from their bones."? Watch 
out for quick and seemingly painless fixes - the damage of the past ills does 
cost."

Finally, I received a very thoughtful note from Nancy Day, my personal 
advisor (although she doesn't know that, but I listen very closely to 
everything she tells me).? You should, too.? Here is what she wrote: 

"I want to offer my thoughts on the Governor's plan and make a few 
suggestions.? When Mike Peevey [Note: Peevey was Nancy's former business 
partner in the firm New Energy Ventures] was named 'advisor', I sent him the 
following words of encouragement:? 'do no harm.'? Now I ask you, will the 
Governor's plan 'do no harm?'? If the answer is yes, work with your members 
and the utilities to fix the gigantic holes in the cost recovery portion of 
the plan.? Although I agree with you that the simplest way to fix what ails 
us is to allow the utilities to recover their electricity purchase costs -- 
evidently that approach carries with it too much political baggage.? So, how 
can we make the Governor's plan work?? Be prepared with talking points that 
all of your members can use in their discussions with the press, with other 
'lobbyists' and with the leadership in the legislature (Burton, Hertzberg, et 
al.). 

"Here are my suggestions on points you may want to cover: 

1) How much does the State really believe the utilities are owed for past 
electricity purchases -- is the number $12 billion?? If so, what amortization 
period is being assumed in the calculation of the rate increase?? How much of 
a rate increase will be required just to cover that past debt?? Is there 
enough "headroom" in the utilities' rates to cover the ongoing cost of 
electricity (both the utilities own generation and the DWR purchases that 
have to be passed on to consumers)? 

2) Since existing rates are predicated on the authorized return on the 
underlying book value (is this number $1 billion?)? of the Transmission 
assets, will the rates have to increase to cover the State's capital costs (I 
am assuming that the State will have to pay "market value" for the purchase 
of Transmission -- plus invest another $1 billion to eliminate congestion and 
add transmission where it is needed) and the new administrative bureaucracy 
to oversee their new assets.? Even with the State's lower cost of capital, 
won't rates have to go up to pay off the bonds and pay salaries to the new 
bureaucrats?? I am also assuming that the Democrats will not eliminate the 
existing Union employee infrastructure of the utilities who will maintain the 
system under contract to the State and will therefore not save any money on 
O&M. 

3) The State believes that purchase of the Transmission grid will remove FERC 
"interference" and they can leverage their asset ownership to bring 
generators to their knees.?? Is this a valid assumption?? Won't the State 
have to comply with FERCs Order 888 requiring open 
access/non-discrimination??? I assume the only relief from FERC oversight 
will come in the form of no rate cases?? Who will oversee the economics of 
the new Bureaucracy -- the CPUC -- not a chance?? The EOB?? The ISO?? The new 
CUBA??? Will this new bureaucracy look and feel just like the ISO whose 
ongoing costs of operation continue to spiral skyward???

4) Are there some potential benefits to State ownership of the Transmission 
grid?? Will the State be capable of acting more quickly than the utilities 
that would be forced to litigate potential transmission expansion before one 
or more regulatory bodies before any project can go forward?? Is the State in 
a better position to work with Transmission builders in Canada and Mexico to 
coordinate the expansion of systems there?? Or, like Cal Trans, is the State 
likely to be just as crippled as the utilities because they have their own 
set of bureaucratic handcuffs that keep progress stifled and slowed? 

5) If we are going to buy into the Governor's plan -- should we hold out for 
reforms that will be needed to create viable retail competition?? I am told 
that the reason the "no more direct access" provision was added to AB 1X, was 
at the insistence of the Department of Finance.? Finance was afraid that DWR 
would contract to buy firm energy for Californian's and they would abandon 
the State in favor of a retail competitor.? One way to resolve this problem 
is to require very large customers (could we define the criteria) to stay 
with their retail competitor for a least 12 months so that DWR will have 
ample opportunity to adjust their purchases to track the changes.? Without 
viable retail competition the utilities must continue to suffer under 
hindsight reasonableness reviews.? I believe, if customers (all customers 
including residential) had viable retail alternatives, we could let the 
utilities buy whatever they wanted and pass those costs through to their 
customers with no regulatory oversight (no profit on generation sales).? If 
the utilities retail generation costs get out of line with competitors' 
offers, the customers will have the unfettered ability to switch. 

"Gary, the only way we will be able to survive this next legislative 
onslaught will be to fix what is wrong.? It will be impossible to derail the 
train." 

Jobs and People 

I guess one of the low points this week was the letter a number of us 
received from Green Mountain's Julie Blunden.? In her letter she says, "Most 
of you aware of the profound changes that have occurred in California's 
electricity markets and political stage over the past nine months. Those 
changes have touched our customers, our partners and our team. I am writing 
to tell you of my very difficult decision to leave Green Mountain Energy.

"As a result of the state of the market in California, our team out here will 
need to reflect the lower level of market activity. At this time, it's 
appropriate for me to move on to the next set of challenges. It has been my 
privilege to work with my teammates in California and a pleasure watching our 
company grow and attract a large set of talented people. 

"I feel fortunate to be able to hand the baton to Rick Counihan.? I will be 
working on the transition with Rick through March 16th. After that, you can 
continue to reach me at 415-902-5313, or blunden@hotmail.com." 

Julie, you will be missed. I first met you at a PUC all parties meeting with 
Commissioner Conlon, way back in 1996, or so.? I can't remember the topic.? 
At that meeting you where so soft spoken, but nevertheless forceful.? First 
impressions being misleading, as always, I thought you were some kind of tree 
hugger, if you know what I mean.? But over time I found your comments to be 
truly insightful, meaningful, interesting, and relevant.? You are a leader, 
and one of the few females, besides Avista's Linda Hamilton, who likes to 
tour power plants.? I hope our professional paths cross again, soon.? Good 
luck to you in all your endeavors. 

Rob Lamkin of Mirant (used to be Southern Energy, but now you must learn how 
to pronounce Mirant.? It sounds like mirror with an ant.) is searching 
talented people.? Rob writes, "As you know, I am looking to hire a few 
regulatory people.? Any suggestions?? Please post in the next Burrito."? 
Done, buddy.? Rob's phone number is 925-287-3102, and his e-mail address is 
rllamkin@seiworldwide.com . 

Seth Wilson, formerly of the Cal PX is looking for employment.? He is an 
excellent analyst, he has over 20 years experience in electricity and gas 
market negotiating energy contracts, and energy risk management.? He has both 
municipal and investor-owned utility experience in resource planning, asset 
evaluation, load forecasting and demand-side management.? He is very 
effective communicating at all management levels, and to present information 
and recommendations to corporate officers, board members and regulators. I 
would encourage anyone interested in talking to Seth to call him at (909) 
653-6045 Cell: (626) 487-9046 <esethwilson@yahoo.com 

Odds & Ends (_!_) 

Paul Gribik, formerly of Perot Systems, and now a consultant with PA 
Consulting handed me a great compliment.? He said the Friday Burrito was like 
a breath of fresh air each week.? He also said the Burrito was like driving 
on Highway 5 between the Grapevine and Stockton where the only relief from 
the bleak landscape is the Harris Ranch.? The Burrito is the Harris Ranch.? I 
asked Paul if he wasn,t confusing the Harris Ranch with the mountain of cow 
crap (talk about a breath of fresh air) 10 miles north of the Harris Ranch in 
Coalinga?? He said, no.? The sight and smell of the cow station only reminded 
him of things going on in Sacramento.? Fair enough. 

Sister Camden Collins clipped a good one from USA Today.? Check it out: 

"It was reported in the USA Today that Governor Davis' secret weapon in the 
design of these innovative solutions is Jerry Springer. There will be a Jerry 
Springer show on the negotiations and resolutions later this month entitled 
Politicians That Love Mud Wrestling with Themselves." 

Finally, my bud from Modesto, Ken Weisel sent me this gem with which we will 
close out the week. 

What is electricity? 

Today's scientific question is: What in the world is electricity? And where 
does it go after it leaves the toaster?? Here is a simple experiment that 
will teach you an important electrical? lesson: 

On a cool, dry day, scuff your feet along a carpet, then reach your hand into 
a friend's mouth and touch one of his dental fillings.? Did you notice how 
your friend twitched violently and cried out in pain? 

This teaches us that electricity can be a very powerful force, but we must 
never use it to hurt others unless we need to learn an important electrical 
lesson.? It also teaches us how an electrical circuit works. When you scuffed 
your feet, you picked up batches of "electrons," which are very small objects 
that carpet manufacturers weave into carpet so that they will attract dirt. 
The electrons travel through your bloodstream and collect in your finger, 
where they form a spark that leaps to your friend's filling, then travels 
down to his feet and back into the carpet, thus completing the circuit. 

AMAZING ELECTRIC FACT: If you scuffed your feet long enough without touching 
anything, you would build up so many electrons that your finger would 
explode! But this is nothing to worry about unless you have carpeting. 

Although we modern persons tend to take our electric lights, radios, mixers, 
etc. for granted, hundreds of years ago people did not have any of these 
things, which is just as well because there was no place to plug them in. 
Then along came the first Electrical Pioneer, Benjamin Franklin, who flew a 
kite in a lightning storm and received a serious electrical shock. This 
proved that lightning was powered by the same force as carpets, but it also 
damaged Franklin's brain so severely that he started speaking only in 
incomprehensible maxims, such as, "A penny saved is a penny earned." 
Eventually he had to be given a job running the post office. 

After Franklin came a herd of Electrical Pioneers whose names have become 
part of our electrical terminology: Myron Volt, Mary Louise Amp,? James Watt, 
Bob Transformer, etc. These pioneers conducted many important electrical 
experiments - Among them, Galvani discovered (this is the truth) that when he 
attached two different kinds of metal to the leg of a frog, an electrical 
current developed and the frog's leg kicked, even though it was no longer 
attached to the frog, which was dead anyway. Galvani's discovery led to 
enormous advances in the field of amphibian medicine. Today, skilled 
veterinary surgeons can take a frog that has been seriously injured or 
killed, implant pieces of metal in its muscles, and watch it hop back into 
the pond just like a normal frog, except for the fact that it sinks like a 
stone. 

But the greatest Electrical Pioneer of them all was Thomas Edison, who was a 
brilliant inventor despite the fact that he had little formal education and 
lived in New Jersey. Edison's first major invention in 1877 was the 
phonograph, which could soon be found in thousand of American homes, where it 
basically sat until 1923, when the record was invented. But Edison's greatest 
achievement came in 1879 when he invented the electric company.? Edison's 
design was a brilliant adoption of the simple electrical circuit: The 
electric company sends electricity through a wire to a customer, then 
immediately gets the electricity back through another wire, then (this is the 
brilliant part) sends it right back to the customer again. 

This means that an electric company can sell a customer the same batch of 
electricity thousands of times a day and never get caught, since very few 
customers take the time to examine their electricity closely. In fact, the 
last year any new electricity was generated was 1937; the electric companies 
have been merely re-selling it ever since, which is why they have so much 
time to apply for rate increases. 

Today, thanks to men like Edison and Franklin, and frogs like Galvani's, we 
receive almost unlimited benefits from electricity. For example, in the past 
decade scientists have developed the laser, an electronic appliance, so 
powerful that it can vaporize a bulldozer 2000 yards away, yet so precise 
that doctors can use it to perform delicate operations to the human eyeball, 
provided they remember to change the power setting from "Vaporize Bulldozer" 
to "Delicate." 

========================= 
Okay, I've got my TV set tuned to "vaporize killer tomatoes".? Have a great 
weekend. 

gba 
?