Hard-Boiled Bidding for Kilowatts Water agency said to be in over its head as a trader
By nearly all accounts, the luckless bureaucrats at the DWR are being torn to shreds by professional energy traders, who see in California's power- purchasing plan a golden opportunity to make off with billions in extra profits."It's like being in a lion cage or a snake pit, however you want to define it," Hannigan said. "We've definitely gotten burned. That goes without saying."
In fact, state officials estimated last week that the DWR is shelling out roughly $350 million a week on the volatile electricity "spot" market and will have spent almost $4 billion by the end of the month.
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Several industry sources said they had been advised not to discuss the DWR's performance since a trading manager at Bonneville Power Administration in Portland, Ore., was quoted as saying that California's new electricity buyers "agree to prices that make you wonder."
The manager, David Mills, told the Wall Street Journal that the DWR is so out of its depth that he has instructed Bonneville's traders "to cut California some slack" by occasionally offering cut-rate prices.
A Bonneville spokesman said last week that Mills had been misquoted, but the damage already was done: The DWR is now widely perceived in energy circles as a pushover.
At this rate, the state will use up by the end of July the entire $10 billion authorized by the Legislature for power purchases.
And speaking of "overscheduling" (transmission line congestion), from California Struggles in Role Of a Large Buyer of Power
Many of the contracts contain "take or pay" provisions that commit the state to pay for power for five to 20 years, whether or not it is needed. That may help to explain why in June a new problem has cropped up -- "overscheduling" -- where the state, at times, has ordered too much power to be delivered. To keep from overloading electric lines, the ISO has had to order some generating units to produce less juice.
And speaking of emission regulations: From Air Emission Credits Called High Priced
In effect, companies are investing in air-emission credits in much the same way they invest in stocks.Coy said one company, Pinnacle West, registered a $412,500 air-emissions credit purchase on March 12, then sold the same credits March 29 for more than $1 million.
The increase in the costs of credits roughly paralleled the state's surge in wholesale electricity prices.
Three years ago, one type of credit sold for $451; this year it went for more than $45,000.
Go to the following Website for a course outline from a University of Chicago Graduate Bus School Course and look at class 16.
Link to U of Chicago Course Outline >
There are two things to look at the first is the Power Point slides (see the last slide).
The course instructor argues that the true causes were:
(1)Short Term Contracts and The Requirement to Sell Through the PX
(2)Underscheduling of Load and Resources
(3)Governance of PX and ISO
(4)Auction Design
(5)Demand Response
Second there is FERC's analysis of the problem back when everyone was in the thick of things. That is found in the report, which is linkable at that site.
FERC basically says that the State of California messed things up pretty badly and provided some solutions that the State refused to implement.
Hopefully this provides a little more documentation that the problem resides with the State of California government (legislature, PX, ISO, DWR, Gov's Office) and that they were not the innocent victim they are trying to portray