1999 - 2000 Gas Prices

NYMEX STRIP

1/99 8/00

Meanwhile, in California [I]

• 2900 MW under construction, inadequate to meet demand growth

• 8000 MW under state review– Some will be rejected and others not built– Local forces also matter -- the Cisco affair

• Effects of new laws to expedite permit process unclear– The Governor’s “Green Team”

• Rising prices of emission permits

Meanwhile, in California [II]

• Growth of silicon / digital industries and customers increasing demand for power– This growth unexpected by planners– Little opportunity for conservation

• Opportunities for user-owned generation being blockaded by utilities and others

Treating the symptoms• Legislative rollback of San Diego rates without

provision for recovery of revenue• Imposition of price controls in ISO markets

increases reliability problems• Also leads to $100 million extra emergency

purchases this summer• Always convenient to blame producers and

marketers– Because they can’t move their plants

How we might have done it

• Large Pennsylvania utilities had big stranded costs

• Instead of putting them in headroom, state negotiates a fixed recovery schedule

• Instead of a rate freeze, customers get a “shopping credit” if they can beat utility price

• State imposed no price ceilings of consequence

The Pennsylvania results

• In first year, 17 % of residential and 63 % of industrial customers leave utilities– Utilities remain financially sound

• Extensive new powerplant construction

• Competitive bidding to be “supplier of last resort”

• W.C. Fields: “All things considered, I’d rather be in Philadelphia”