WHY  CALIFORNIA SHOULD HAVE  LISTENED TO ENRON

NOT HERE....NO   WAY
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.  Even  Enron  gave up in 
Pittsburg, in North California
when  it took  too long to site a clean 500 MW gas combined cycle plant on an 
empty site that is 
right next door  to an existing plant!   In fact in all the  state only 700 
MW  of new capacity were  added since  1996  compared to its  growth of 11000 
MW  since  then.  This  growth  ate up all the surplus capacity that existed 
in 1996.  No wonder  they are power short.  It is  a tough dilemma since  
this  state's hi tech businesses and commercial businesses and homeowners  
have fast growing demand for more and more reliable power. 

THE 10 PERCENT  CUTS  BOTH WAYS 
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 loudly protested  at the time--.  This rate cu,  just  
as  Enron  predicted  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. It  would have  worked if PG&E and SoCalEd 
had cut their costs --as they should have -- by 10 percent to accommodate  
the rate cuts, but of course they didn't. Surprise surprise.  

BI LATERAL CONTRACTS  TO THE RESCUE
 Further    problems arose because of the CPUCs  requirement  for wholesale 
buyers and sellers to use the PX  (power exchange) auction system  -- instead 
of  bilateral contracting  which  Enron Government Affairs strongly  
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.   Now  
that the PX is often unworkable  bilateral contracting is begging to be 
allowed.  But  it may be too little too late.

TO MAKE  THINGS WORSE
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   worsen the economics  
for any potential power plant  developers  who might  be out there 
considering building  a  plant  in C alifornia.  Many   US power markets  
have no  price  caps  at all or  caps  of   $1000 MW  (or high  enough  so 
they are  seldom  triggered.)  Not  California.

CALIFORNIA'S  WOES AREN'T  EASY  TO  FIX
What  does  this  all mean?  If  California  had listened  to Enron it  
would  have avoided   the severe problems  it has today--- lack of  new 
plants, lack of  market oriented power prices, rate caps that discourage 
sellers and developers alike and irate customers.  It would have had no 
automatic  rate  cut and consumers  would  know  when their  costs  were  
going  up or  down.   The  State  would use bilateral contracting 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. 

NOT IN MY  BACKYARD  OR  YOURS  EITHER!!
 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 desparately  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 lots more 
cheap,  environmentally clean power  but  don't  build any plants here  in my 
state to do it.