FYI
---------------------- Forwarded by Gavin Dillingham/ENRON_DEVELOPMENT on 
08/28/2000 08:05 AM ---------------------------



Steven.J.Kean@enron.com@enron.com on 08/28/2000 07:36:46 AM
To: Gavin.Dillingham@enron.com
cc:  

Subject: fyi


Please send to the distribution list
---------------------- Forwarded by Steven J Kean/NA/Enron on 08/28/2000
07:36 AM ---------------------------

From: Cindy Derecskey on 08/25/2000 04:01 PM

To:   Steven J Kean/NA/Enron@Enron, James D Steffes/HOU/EES@EES, Richard
      Shapiro/HOU/EES@EES
cc:

Subject:  fyi


----- Forwarded by Cindy Derecskey/Corp/Enron on 08/25/2000 04:00 PM -----


"Martin, Kim" <martinki@fleishman.com> on 08/25/2000 03:51:17 PM

To:   "'mark.palmer@enron.com'" <mark.palmer@enron.com>
cc:

Subject:  fyi


Didn't know if you saw this column in today's LA Times, but he makes some
good arguments...

>         JAMES FLANIGAN: Simple Steps May Ease Self-Inflicted
> Electricity Woes
>         Los Angeles Times -- August 25, 2000  [Return to Headlines]
>
>
>            Publication Date: Friday August 25, 2000
>            Page C-1
>            Los Angeles Times (Home Edition)
>            Copyright 2000 / The Times Mirror Company
>            By JAMES FLANIGAN
>
>         Let's be clear, the fact that the state botched the job of
> deregulation to begin with is one reason California's electricity market
> is such a mess.
>
>         But failure to build a single new power plant in the state
> even as California's economy expanded its use of electricity is the basic
> cause of today's shortages and soaring prices in San Diego, Orange County
> and other areas.
>
>         Still, some simple steps can be taken by regulators,
> legislators and Gov. Gray Davis to provide immediate relief.
>
>         The state's major utilities should be free to buy power
> wherever they can get it. They should not have to buy exclusively from
the
> Power Exchange, the Pasadena-based power pool that was set up by the 1998
> deregulation to achieve auction-based prices for roughly 80% of the
> state's electricity.
>
>         Approval should be expedited for adding smaller generating
> plants that supply power at times of peak demand. That could alleviate a
> tight supply-demand situation over the next year or two while larger
> plants are built.
>
>         Long term, the state needs to speed up the approval process
> for building new electricity plants. The state also should force
utilities
> to invest in the still-regulated system of power transmission lines,
which
> now has weaknesses in the San Diego and San Francisco areas.
>
>         Perhaps the most glaring fact about California's electricity
> problem is how few companies have stepped up to supply power to this
> enormous market, the nation's biggest. Only 15 or so suppliers, including
> federal agencies, the state's own utilities, municipal companies and
> private generating firms, supply power to California's system.
>
>         By contrast, Pennsylvania, which has an electricity market
> less than 12% the size of California's, has 130 separate suppliers of
> electricity today, reports John Quain, chairman of that state's Public
> Utility Commission.
>
>         It's no coincidence that Pennsylvania has seen monthly
> electric bills drop 3% on average since deregulation. "It's worked out
> terrifically," Quain says.
>
>         What did California do wrong? It allowed the state's major
> utilities--Pacific Gas & Electric, Southern California Edison and San
> Diego Gas & Electric--to recover 100% of their unrecovered or "stranded"
> costs for nuclear and hydroelectric plants and for past power purchase
> schemes mandated by the California legislature to encourage alternative
> sources of energy.
>
>         Then California's legislators told the utilities to sell
> their conventional power plants to private generating companies, all of
> which would sell their power to a central Power Exchange.
>
>         The California scheme was flawed, at once over-regulated and
> yet commercially clueless in not foreseeing trouble from a single power
> pool fed by only a handful of suppliers.
>
>         How did Pennsylvania do it? It allowed the state's utilities
> to recover no more than 67% of their stranded costs for nuclear
> plants--reasoning that company shareholders should accept some of the
risk
> of their investments. And rather than set up a central power exchange,
the
> state allowed its utilities and newcomers to the state's electric system
> to compete for business.
>
>         Competition, after all, is what deregulation is supposed to
> encourage. And competition is not happening in California.
>
>         It should be noted that the summer is relatively cool in the
> East this year and extraordinarily hot throughout the West. All the
> Western states are suffering electricity problems. That's another reason
> for California's trouble.
>
>         Normally, 28% of California's electricity comes from U.S.
> and Canadian government systems and from utilities in Oregon and
> Washington, Nevada and Arizona. But this year, because of lower
> hydroelectric supplies and higher demand from booming economies in those
> other states, power for California is in shorter supply and more
expensive
> when the state can get it. Now there are accusations that some suppliers
> to California have taken advantage of their market leverage to extract
> premium prices for power.
>
>         There's nothing illegal in angling for a better price or in
> using futures markets and other trading techniques, as some generators
may
> have done. If any stepped over the line to illegal collusion, federal and
> other investigations will determine the facts.
>
>         But who gave the generators the market leverage to exploit
> us? The California regulators, legislators and utilities did. Told to
sell
> their generating plants in 1998, the utilities sold dozens of plants in
> package deals of two and three to single buyers. They received premium
> prices from buyers such as AES Corp., Duke Energy, Southern Co. Reliant
> Energy, Dynegy and NRG. The premiums were paid for the market leverage
> that multiple plants afforded the buyers.
>
>         Nobody in the utilities reckoned that they were handing
> market leverage to potential commercial adversaries. Nobody in the
> Legislature or the regulatory staffs reckoned that the central Power
> Exchange could be held up by market leverage.
>
>         As outsiders often say about Californians: "Maybe it's the
> sunshine makes them slow."
>
>         (END)
>
>         05:23 EDT August 25, 2000
>         Copyright , 2000 Times Mirror Company
>
>
>
>