The utilities do not comment on TURN's proposal to include off-peak escalators. ORA maintains its same position to use the CEC's MCP estimates. Only the CEC takes affirmative issue with the use of off-peak escalators and explains its rationale. The CEC contends that the exercise of market power is the primary underlying cause of the steep supply curve and price volatility and that the escalators should not be applied to the off peak periods unless it is certain that market power is exerted during those periods. Thus, the CEC concludes that the JBS Study must be expanded to include consideration of market design flaws that lead to the exercise of market power and consideration of the actions underway to mitigate or cure existing market design flaws and market power over time. The CEC argues that the observed market multiples of 8 to 10 found in the study at peak should be shifted downward over time.

The JBS Study, as previously stated, appears to be a viable study and the authors make a credible and persuasive argument that load reduction has a substantial system value during off-peak periods as well as on-peak periods. However, given the plausible arguments of the CEC, and the inadequate time for the parties to fully address this issue, we feel the better approach to take for PY 2001 programs, to ensure the Commission has a full record before it, is to perform alternate cost-effectiveness analyses, one using avoided cost estimates that include TURN's proposed off-peak escalators and one using avoided cost estimates that exclude any off-peak escalators. This should give us the reasonable range of avoided costs.7 The parties will be given the opportunity to present evidence and argument on this issue after the Applications are filed.

7 Once again, we note that TURN's proposal uses conservative values, since they were refined to include the effects of physical hedges (utility retention of generation assets), to reduce the off-peak multiplier from 52.5 to 2.0.

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