Traders et al:

Here's some background on why Reliant's dropping its CA peaking offer--they're holding out for a relaxing of the air quality regs.

---------------------- Forwarded by Mary Schoen/NA/Enron on 05/25/2001 10:29 AM ---------------------------

 
"Joel Bluestein" <jbluestein@eea-inc.com> on 05/25/2001 07:31:34 AM
To:	mschoen@enron.com
cc:	 

Subject:	CA Power/Environmnet

Pressure builds on Davis to relax air standards  



Updated: May 24, 2001 - 2:22 p.m.  

A major electricity supplier said Thursday it will sharply cut prices 
for power from three Southern California plants in anticipation that 
air quality monitors will let the plants release more pollution this 
summer.  

Meanwhile, aides said Gov. Gray Davis will consider paying 
businesses to run heavily polluting diesel generators to boost the 
state's power supply and help avert rolling blackouts.  

Reliant Energy said it could chop its power bids from the high of 
$1,900 per megawatt hour Davis criticized this month to as little as 
$150 per megawatt hour -- but only if air regulators quickly allow it 
to exceed pollution standards at the three plants.  

The Houston-based generator will cut its prices immediately, but 
will soon be forced to shut down three of its five Southern California 
plants for the rest of the year if pollution standards aren't lifted, said 
Joe Bob Perkins, president and CEO of Reliant Energy Wholesale 
Group.  

Davis singled out Reliant's $1,900-per-megawatt-hour charge earlier 
this month as an example of the egregious prices he said 
generators should voluntarily cut.  

Reliant said it deliberately bid the high price to discourage the 
state's power grid operator from calling its high-polluting plants into 
use. Using the plants now eats up valuable pollution credits that 
will likely be needed to keep the plants running during even higher 
demand periods this summer, the company said.  

"In essence, we are doing exactly what Gov. Gray Davis has 
suggested. But if these restrictions are not lowered, we will run out 
of power from these units very quickly," Perkins said in a 
statement.  

Perkins proposed that emissions hours not be counted against 
Reliant's yearly allotment whenever the plants are called into 
operation to help prevent blackouts.  

Reliant's Mandalay, Etiwanda and Ellwood plants each face annual 
air pollution limits imposed by the South Coast Air Quality 
Management District and the Santa Barbara County and Ventura 
County air pollution control districts. Reliant has asked for 
extensions from each of the districts.  

"There's no question we are in an emergency situation. We will 
consider every option available" to avert blackouts, said Davis 
spokesman Roger Salazar. But he said the administration had not 
seen Reliant's proposal.  

Davis also will consider paying businesses to fire up their backup 
generators when necessary to avoid outages, Salazar said. 
Running the generators would let the businesses disconnect from 
the state's power grid, freeing up electricity for other uses.  

The proposals have consumer and environmental groups outraged.  

"It's a short-term fix that will have potential long-term health 
consequences," said Paul Knepprath of the American Lung 
Association of California.  

The state should instead cut demand by encouraging more 
conservation, the lung association and 18 other consumer and 
environmental groups said in a letter to Davis on Wednesday.  

Davis already is promoting conservation, but blackouts have health 
and public safety consequences too, Salazar said. The use of 
backup generators is being proposed by the administration's top 
energy advisers, but Davis has not yet seen the proposal, Salazar 
said.  

The governor is willing to "explore every conceivable option for 
generation this summer," Salazar said.  

The twin developments come the same week the administration cut 
by 20 percent its estimate of new power generation that will be 
available this summer. Davis now projects 4,000 additional 
megawatts, 1,000 megawatts short of his original estimate. A 
megawatt is enough power for about 750 homes. 
Joel Bluestein
Energy and Environmental Analysis, Inc.
Phone 703-528-1900
Fax 703-528-5106




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