A full copy of the letter is attached.
March 22, 2001
The Honorable Gray Davis
Governor of the State of California
State Capitol
Sacramento, CA 95814
Dear Governor Davis:
The New York Mercantile Exchange (NYMEX) has overseen the fair and competitive pricing of energy markets since 1978. The Exchange is recognized worldwide as the leading marketplace for energy pricing, and our products are recognized throughout the world as benchmarks for buying and selling a wide variety of energy products including crude oil, natural gas, gasoline and home heating oil.
This current crisis in the electricity market is directly related to the flawed non-market structure imposed in 1998. However, we believe that we have straightforward, cost effective solutions, all of which we have advocated since 1995.
California has consistently, and we believe mistakenly, placed the state (or state controlled mechanisms) like the defunct Power Exchange or the ISO as the principal buyer and seller of power for all consumers in the state, businesses and homeowners alike. It seems that medium and large businesses have been deemed unable to negotiate fair and reliable supply contracts on their own behalf. We believe that this aspect, perhaps unintended, is creating an unmanageable problem for the state - - provision of sufficient electricity for the state’s consumers at affordable prices, without driving the state into insolvency. Promptly releasing medium and large commercial and industrial power buyers from the state’s obligation would free billions of dollars of state capital from the risks of volatile energy markets that it is ill-equipped to handle. Requiring power suppliers to compete - i.e. fight - for each and every customer account would also undoubtedly lower price and improve reliability. Any comprehensive plan to deal with this growing crisis should contain the following elements:
- Remove the direct access ban from state law and provide a framework to encourage medium and large commercial and industrial users to obtain their own energy agreements.
- Eliminate the monopoly electricity market in California, be it the PX, Department of Water Resources, or the Independent System Operator (ISO).
- Permit and encourage the use of financial market instruments for the state to protect itself from unexpected energy price moves, rather than locking customers into potentially high priced fixed contracts.
My staff and I stand prepared to come to California on a moment’s notice to discuss this with you in person. Please feel free to call me directly at +1 212-299-2250. For your information, I am attaching a summary presentation that summarizes our previous testimony and public statements in which we criticized the policies and predicted specifically that, with their adoption, the very problems now being experienced would occur. Our predictions, unfortunately, came true, but they also underscore the bad consequences of obstructing market competition in favor of a managed solution.
Very truly yours,
Vincent Viola
Chairman
Cc: California State Assembly
California State Senate
