With a few more phone calls, the deal was done. On paper, the power coursed through five owners and more than tripled in price. By the time it reached California, the operator of the state's power lines had to pay $12,500 for Mr. Tish's $3,500 block of electricity.
So the smoking gun for this article is a block of electricity that cost $3,500 originally. This is so little money in the world of power sales as to be the equivalent of chump change. Does the author really think that power was traded in the California energy crisis is such little tiny blocks as to have this be a typical example of what caused the California energy crisis? It couldn't have been that way or there would have had to have been ten's of thousands of energy traders to handle the required volume. No, this is not the cause of the claim for billions of money overpaid.
Thus, Dynegy and three other suppliers wound up splitting $8 million for keeping plants on call for five hours, according to state and federal records.
OK, now we are getting into some real money; $8 million in five hours! Let us examine this one more closely. There were lots of plants that were suppose to be shut down because they were at the end of their air pollution emission limits. Some of these plants had fairly steep air board penalties if they exceeded their allowances. Also some of these plants might require a full crew of plant workers and operators to report for a full shift under union rules even if they were only operated a couple hours. Some of these plants might further require a slow build up of temperature in advance of operations. Some of these plants might require special very high cost natural gas transmission if they had not been scheduled to operate. That could be a lot of cost.
However, $9,999 a MWh is probably more than the some of all that cost unless the plants in question were 10 MW units where labor costs, startup costs, etc. could dominate the economics of five hours of power delivery. Considering that $8 million is involved at a price reported to be about $10,000 per MWH, we are probably talking 800 MWh in total or 160 MW for each of the five hours. So five companies dividing 160 MW is about 30 MW per company.
Again we have very small quantities that could legitimately be priced high, maybe not a full $9,999 per Mwh but high none the less.
The congestion schemes apparently produced small gains for Enron, roughly $60 million in 2000, according to FERC. But insights drawn from those strategies may have helped Enron reap $1.8 billion in profits trading electricity during 2000 and 2001. Enron didn't own California power plants, so its profits depended on price volatility, which lets traders buy low and sell high. Congestion, or the appearance of congestion, can make prices more volatile.
To see how, consider what happened in May 1999, when Enron proposed moving 2,900 megawatts of power from Nevada to Southern California on a line that could accommodate only 15 megawatts.
OK, so the ISO is so stupid that if Enron says it wants to Move 2,900 MW over a 15 MW line, the ISO doesn't say no, you can't do that! This is not an example of Enron being brilliant. This is an example of the ISO & PX being absolutely stupid and incompetent! Nobody worth his salt should have allowed a power schedule like this to be placed! To do so would be to say that the transmission system suddenly needed to change shape in a big way and that someone should run out and build a transmission line in a hurry. That is what congestion pricing is about in theory.
Now the other little piece of information here is that Enron made $60 million in 2000 but $1,8 billion in 2000 and 2001 in trading electricity. I would wager that the $1.8 billion didn't all occur in 2001 in a way that you and I would understand. I would wager that the $1.8 billion is a national figure based on taking profits from many multiple year sales made at the height of the energy crisis. So this number is probably ten or more years worth of profits across the entire country and maybe even the world. This is therefore not the cause of the $8 billion over charge claims by California.
State officials blame El Paso Corp., Houston, owner of one of two big pipelines that bring gas to Southern California. California officials say El Paso's pipeline unit and its energy-trading affiliate manipulated gas supplies to increase prices. (El Paso Corp. isn't related to El Paso Electric.)
In February 2000, El Paso sold one-third of the capacity on its pipeline for 15 months to the affiliate, El Paso Merchant Energy. Merchant won the right through an auction, but state officials say the deal was rigged, with a secret discount that wasn't advertised to other bidders. Then, officials say, the two units limited the amount of gas coming into California, with the goal of raising prices.
OK, I believe that there was a combination of shortage in natural gas pipe line capacity and some manipulation by the pipeline and gas companies that was part of the price roll up. However, does anybody remember the natural gas pipeline explosion near El Paso (actually in New Mexico near a bridge where a family was camping and killed)? I remember it and remember how freaked communities were that had major pipelines running through them. I also remember that not only did it take a long time to get the pipeline fixed, but that there were proposed laws in the US Congress to dramatically alter pipeline regulations and communities demanded that pipelines be taken out of operation to be tested to insure their integrity. I suspect that the accident has never been fully examined as a root cause of some of the price spike in California.
Such stunts didn't matter much until the warm spring of 2000, which reduced the water available for hydroelectric dams in the Pacific Northwest, source of up to 20% of California's summer power. Meanwhile, electricity use across the West grew much faster than projected. The era of energy surpluses had ended
A couple of points. California's statement that it will get 20% of its electric power needs from renewable resources by new legislative mandate. I guess they want year around NW hydro or something else. Historically they got PNW hydro for around $20 to $30 per MWH. During the drought there was little PNW hydro and a lot of PNW utilities hooked up diesel generators to make electricity at about $100 to $200 per MWH and sold that to themselves and any extra to California. That five fold price increase and the sky high prices of natural gas (normally $2 to $3 per MSCF but sometimes going for $25 to $150 per MSCF) is what drove the price of California electricity through the roof! The cause of the California energy crisis was a lack of price response on the part of the consumer combined with panic buying on the part of the DWR, all worked into a dysfunctional regulatory system that was pointed out early in the process as having problems.
An excellent summation.
• Energy companies seized on loopholes and local shortages to charge prices hundreds of times higher than normal.
Loopholes. That makes me laugh. The morons in the Davis (mal-)administration demanded "price caps", and imposed "must sell" and "maintenance" regulations on in-state generators, and now act surprised when the victims found ways around their stupid rules. These companies are in business for one reason: To make money. They would be foolish not to take advantage of "local shortages", brought about by the NIMBYs and BANANAs in Kali.
• Suppliers withheld power from the state's primary market, and sometimes idled power plants to induce shortages and boost prices.
As you said, the main reason these plants shut down at the peak of the crisis was that they had reached their emission limits. Reliant Energy and the $1900 per MW. NOx credits went from less than 10 cents per pound, to over $3! And the PUC would not let the generators recoup that cost, so they just shut down. In another thread, the manager of the AES Alimitos plant near Seal beach said, "the company was not able to successfully juggle competing pressures from the AQMD and the state's power-grid operator." The plant had just been fined a record $17 million by the AQMD for continuing to operate beyond their emission limits, AT THE REQUEST OF THE CAL-ISO!
In other cases, the Cal-ISO ordered them to shut down out of pure incompetence. Where is the thread on the plant that the union guys charged that the management "ordered them to shut down to create a shortage". San Diego, wasn't it? It turned out that the Cal-ISO told them to shut down.
And having worked in plant maintenance, I can tell you that there is always a huge stack of maintenance items which are put into work when there is an unplanned outage, like a steam tube rupture.
And speaking of that, it can take weeks to repair one of those things. First, you have to cool the plant down, then purge the boiler, then open it up and build scaffolding from the bottom up to the pendants - possible 100' high or more. You have to install ventillation and lighting, and only then can you actually repair the tube leak. Then the whole process is reversed.
Thirdly, the geniuses at the Cal-ISO issued impossible regulations. From Calif ISO: Noticeable Rise In Generators' Non-Compliance
Generators Wary About New Market RequirementsDays after the Aug. 2 [2001] incident, the ISO sent a notice to market participants setting forth new operational guidelines. One of the guidelines is simply unworkable for operators of a certain kind of large power plant, said Reliant's Wheatley.
The requirement is to power, or "ramp up", a plant 10 minutes before it is scheduled to provide electricity, then "ramp down" 10 minutes after it is scheduled to stop. That isn't possible for combined-cycle plants, which use waste heat from natural gas turbines to produce steam for conventional steam turbines, Wheatley said.
"You can't just flip the switch on a combined cycle plant, the way you can with a peaker. It takes a half-hour to bring one of these plants up," said Wheatley.
• Gas companies manipulated supplies and prices, driving up the cost of a main ingredient of electricity.
FERC has already looked into this and found nothing to that story. But that doesn't seem to bother the WSJ.
• Enron played a much bigger role than previously believed in California's energy market. Its trading strategies overwhelmed regulators and drove up prices.
At the peak of the crisis, Enron supplied a maximum of 4% of Kali's electricity needs. Tell me how such a small-time player could be responsible for what happened. And if they were making so much money, how could they have gone bankrupt, eh?
From The Enron Blame Game
Since corporate ruthlessness usually reflects the vigor with which a company pursues profits, it would appear that Enron was actually not ruthless enough. For instance, records pried from the governor's office by legal action reveal that during last year's crisis Enron was charging less for electricity than the market average and significantly less than Davis's own L.A. Department of Water & Power, under the direction of the governor's "electricity czar," David Freeman.Even were Enron overcharging, it was scarcely a major player in California's market. According to the governor's office, Enron only supplied about 4 percent of the state's electricity needs. Davis's relentless campaign to lay all or even some of California's electricity troubles at Enron's doorstep is ludicrous on its face.
I'm thinking of cancelling my WSJ subscription over this article, and the other hit piece on Enron. Clearly Al Hunt as taken over their shop.