Attached is Margaret Carsons' revised draft:

WHY CALIFORNIA SHOULD HAVE LISTENED TO Enron Corp


CALIFORNIA,S ELECTRICITY WOES
The root cause of California,s high electricity costs today stem from a 
severe lack of new power plants.  Why?  Not enough capacity was added since 
1996 due to tough siting problems in this ecology prone state.  In fact in 
all the state only 700 MW of new capacity was added since 1996 compared to 
its growth of 11,000 MW since then.  The growth ate up all the surplus 
capacity that existed in 1996.  It is a tough dilemma since this state,s high 
tech businesses and commercial businesses and homeowners have fast growing 
demand for more and more reliable power.

THE 10 PERCENT CUTS
The CPUC compounded the state,s problems when they put their electric 
deregulation plan in place in 1997-98 by mandating a high 10 percent rate cut 
to residential and commercial consumers*which Enron protested at the time.  
The rate cut discouraged alternative power sellers from selling into 
California because it was a hard price to beat and it blurred consumers 
understanding of what is actually happening to their cost of power.

BILATERAL CONTRACTS TO THE RESCUE
Further problems arose because of the CPUC,s requirement for wholesale buyers 
and sellers to use the PX (power exchange) auction system*instead of 
bilateral contracting which Enron Government Affairs advocated at the time.  
The PX uses an auction to set a single highest price that clears the market 
in one time period for all power rather than the variety of prices that can 
be agreed to by dozens of counterparties under a free market using bilateral 
contracting.

Because the CPUC has been shocked by the high prices being reached in the PX, 
it now has been setting tight $150-$250 MW price caps which obviates its own 
auction process and discourages sellers of power away from selling power into 
California.  But it also worsens the economics for any potential power plant 
developers who might be considering building a plant in California.  Many US 
power markets have no price caps at all or caps of $1000 MW (or high enough 
so they are seldom triggered). 

CALIFORNIA,S WOES AREN,T EASY TO FIX
What does all this mean?  If the state would use bilateral contracting 
instead of the PX auction to get its supplies so if Duke or Enron or Exelon 
or Dynegy or whoever had contracts with counterparties the prices would be 
variously set, and if more power demand was evident developers would have a 
clear economic basis on which to contract for their new plants.  There would 
be no need for price caps.
 
NIMBY ISSUES REMAIN
On the power plant siting problem, this is a tough one.  California is a 
beautiful state and prides itself on its green conscience.  Even a few high 
tech companies that need 99.9999 percent reliable power desperately are still 
unwilling to build a small clean gas combined cycle plant inside their own 
fence.  So we do not know how California can resolve siting problems as it is 
a quirk of the state that says give me lot more reasonably priced, 
environmentally clean power but don,t build plants here in my state unless 
they can meet the state,s tough economic and environmental criteria.