high px price can reflect: 1. high operating cost of final units 2. weak demand response 3....
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High PX price can reflect:
1. High operating cost of final units
2. Weak demand response
3. West-wide market conditions
4. Withheld capacity
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One Market -- Before and After
1/96 5/98 9/00
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Why San Diego suffers, Phoenix doesn’t, and Fullerton
will [I]• Non-California prices on charts are for final
increments of power
• The rest is under contract or produced in utility-owned plants
• Every unit of power in the California PX sells at the market-clearing price.
• That price is the highest accepted supply bid.
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Why San Diego suffers, Phoenix doesn’t, and Fullerton
will [II]• FERC requires SDG&E to pass PX prices
through in full as incurred
• The company originally wanted and got very limited options to hedge the PX price– And didn’t use them this summer
• The “headroom” provisions of AB 1890 discouraged entry of competitive sellers– By summer, prices for power contracts all over the
west had already risen
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Relative Power Prices--Bilateral Vs CalPX at PV July 18,1998
$0$10$20$30$40$50$60$70$80$90
$100
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
PV Bilateral AZ3 PX
Relative Power Prices--Bilateral Vs CalPX at PV July 18,1998
$0$10$20$30$40$50$60$70$80$90
$100
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
PV Bilateral AZ3 PX
Purpose of CalPX Block Forward Market
• Firm forward pricing
• Manage transmission congestion uncertainty
• Provide benefits of CalPX exchange-based trading to block forward market
– ready market
– price discovery
– standardized contract
– anonymity
– reduced trading risks
– one-stop shop
Relative Power Price DifferentialsJuly 18, 1998
$0
$10
$20
$30
$40
$50
$60
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
PV Bilateral COB Bilateral
Relative Power Price DifferentialsJuly 18, 1998
$0
$10
$20
$30
$40
$50
$60
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
PV Bilateral COB Bilateral
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Why San Diego suffers, Phoenix doesn’t, and Fullerton
will [III]• SoCal Edison and PG&E have frozen rates,
sometimes don’t cover energy price• Uncertain if they can meet 3/31/02 stranded cost
deadline• If they do, customers get PX passthrough• If they don’t, they intend to seek extension and
surcharges– Political allocation of loss between shareholders and
consumers
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Treating symptoms or problems? [I]
• Real problem: market prices in west show long-term production-demand imbalance– Only a matter of time before contracts adjust
• Non-storeability and transmission constraints lead to expectation of price spikes– Frozen retail bills inhibit demand responses
• Single PX market-clearing price is unlike any other commodity market– This market was imposed, not evolved
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Treating symptoms or problems? [II]
• Outside California, western consumers still benefit from markets California rejected
• This summer, the southwest is hot and the northwest is dry -- high cost power must replace imports
• Longer-term, the southwest is filling up, the northwest has decreasing export capacity, and very little is being built in California
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