From: mark.palmer@enron.com
To: jeff.dasovich@enron.com
Date: 2001-07-18 11:50:00+00:00
Subject: FW: Surplus State Power Sold at loss

here you go
 -----Original Message-----
From:  Schmidt, Ann M.  
Sent: Wednesday, July 18, 2001 11:05 AM
To: Palmer, Mark
Subject: Surplus State Power Sold at loss

Surplus state power sold at loss 
Posted at 11:50 p.m. PDT Tuesday, July 17, 2001 
BY JOHN WOOLFOLK 

Mercury News 


State officials who bought power contracts averaging $138 per megawatt-hour 
for this month are selling some of the power back for as little as $1 per 
megawatt-hour, traders say. 
After scrambling this spring for every megawatt it could buy to stave off 
summer blackouts, cool weather and decreased demand have left the state 
holding more power than it needs and selling the surplus for whatever it can 
get. 
State officials won't say how much they are selling the power for, but 
acknowledged unloading surplus electricity. 
``We're seeing certain times of the day where we may not need power that we 
previously thought we needed, and we're selling it on the open market,'' said 
Oscar Hidalgo, spokesman for the state Department of Water Resources. ``We're 
probably moving a little more power than we anticipated, but I don't think 
anybody anticipated a July like we're experiencing.'' 
Utilities routinely sell surplus contract power when demand is lower than 
expected. But the state's recent sell-off could fuel criticism that 
California bought too much power at too high a price, fearing rolling 
blackouts and soaring prices this summer. 
``There's a painful lesson to be learned when you overbuy when supplies are 
tight,'' said Gary Ackerman, executive director of the Western Power Trading 
Forum. ``Anybody can lose money in this business, and the state of California 
is getting a taste of that.'' 
The state in the past week has sold anywhere from 10 to 20 percent of its 
available power, Hidalgo said. On Tuesday, the state had up to 40,000 
megawatts available, while demand hovered around 32,000 megawatts, according 
to the power grid operator. 
Must be sold 
Because electricity cannot be stored, power purchased in contracts for a 
later date would be wasted if not used or sold. 
``It's better than losing it altogether,'' Hidalgo said. ``The way the 
electricity business is set up, you either use it or move it. You can't put 
it in a bottle and put it on a shelf.'' 
State officials would not say how much they've made in sales to offset 
purchase costs, citing concerns about jeopardizing their bargaining position. 
According to California Energy Markets, a trade weekly, the state was 
unloading power last Thursday at $25 per megawatt-hour. Ackerman said the 
state has been selling power for as little as $1 to $5 per megawatt-hour. 
Power was selling on the spot market for $20 to $40 per megawatt-hour 
Tuesday. 
The state, which assumed the role of power buyer for California's biggest 
utilities in January, expected to sell surplus power from time to time, 
although not quite this much, Hidalgo said. Even with demand down, the state 
still is buying more power than it sells, he said. 
With temperatures throughout the West unseasonably low in recent weeks, other 
utilities also are selling their surplus power at a loss. 
``That's an accepted operating risk we always assume,'' said Scott Simms, 
spokesman for Portland General Electric, adding that recent federal price 
caps are lower than what the Oregon utility paid. ``Sometimes you gain, 
sometimes you lose. Hopefully, if you planned well, you end up winning.'' 
Whether the state planned well or overbought is hard to say. The contracts 
could prove invaluable if another heat wave threatens blackouts. Ackerman 
likened power contracts to insurance -- a prudent move to guard against 
shortages and price spikes, even if it turns out you don't need it. 
At the very least, the current situation underscores the importance of 
weather in the volatile electricity market. Traders pore over forecasts and 
even buy weather insurance, Ackerman said. 
Demand and prices have been so low that some energy companies are shutting 
down the small power plants called ``peakers.'' 
Hidalgo said the state has no regrets. 
``What we were doing was making sure we had an available supply with these 
contracts,'' Hidalgo said. ``We were facing scarcity in the market early on. 
There wasn't enough supply to fulfill the need. What the contracts have done 
is obligated the producers to give us power.'' 
Blackout threat fades 
The state's daily power costs have fallen from more than $100 million in May 
to less than $26 million in July, Hidalgo said, and there hasn't been a 
blackout in two months. While some of the surplus power is sold on the 
market, it is also being traded to Northwestern hydropower utilities to cover 
past debts, he said. 
``This is not a bad position for us to be in,'' Hidalgo said, adding that the 
situation could always take a turn for the worse. ``We can't lose sight of 
the fact that we're still in an emergency situation. If this was routine, 
this crisis would be over. We're not out of the woods.'' 


Contact John Woolfolk at jwoolfolk@sjmercury.com 
<mailto:jwoolfolk@sjmercury.com> or (408) 278-3410.