---------------------- Forwarded by Hunter S Shively/HOU/ECT on 01/17/2001 
04:21 PM ---------------------------
From: James D Steffes@ENRON on 01/15/2001 10:22 AM
To: Laura Luce/Corp/Enron@Enron, Hunter S Shively/HOU/ECT@ECT
cc:  
Subject: Crain's - January 15, 2001

FYI.  Some interesting articles on Chicago natural gas issues.

Laura - I am in the office on Tuesday.  Would you like to talk about these 
matters?

Jim


----- Forwarded by James D Steffes/NA/Enron on 01/15/2001 10:19 AM -----

	Susan M Landwehr
	01/14/2001 10:52 AM
		 
		 To: James D Steffes/NA/Enron@Enron
		 cc: Harry Kingerski/NA/Enron@Enron, Janine Migden/NA/Enron@Enron, Roy 
Boston/HOU/EES@EES
		 Subject: Crain's - January 15, 2001

Jim--please take a look at these articles that will come out in the Crains 
magazine tomorrow.  You'll see that there are both opportunities and potholes 
for us on this issue.    It is very likely that we will get sucked into this 
debate----the ENA/ Peoples deal which has generally floated under the 
regulatory radar in the past is inevitably going to become more prominent. 
(Evidence even before these articles is that I received a call from the ICC 
staff late last week asking if we could participate in an ICC meeting on 
natural gas issue on Jan 23).  

The articles (and the gossip that I have heard in the past few weeks) point 
out that Peoples is in hot water politically--I would hate to see us dragged 
into that sesspool.  On the other hand, if ENA sees significant business 
opportunities that could be opened up to them in Illinois by a change in the 
regulatory climate, this could be the time to make the play....while the 
issue is hot and there may be pressure on the ICC to take some steps that 
they normally would not.

I'd appreciate it if we could plan a call to talk about strategy on 
Illinois.  I am going to have to give a response to ICC on Tuesday and we 
will need to determine who would particpate in the meeting at the ICC.  Roy 
and I had put in a call to Laura Luce last Thursday to discuss the request 
from the ICC...I have not heard back from her, but Roy may have.  

Are you available on Tuesday for a conference call?  




----- Forwarded by Susan M Landwehr/NA/Enron on 01/14/2001 10:32 AM -----

	"Fein, David I. - CHI" <david.fein@piperrudnick.com>
	01/13/2001 06:03 PM
		 
		 To: "'Susan_M_Landwehr@enron.com'" <Susan_M_Landwehr@enron.com>, 
"'rboston@enron.com'" <rboston@enron.com>
		 cc: "Townsend, Christopher J. - CHI" <chris.townsend@piperrudnick.com>
		 Subject: Crain's - January 15, 2001

Sue & Roy -- We thought that you would find the attached articles regarding
the high natural gas prices in Illinois to be of interest.  

To solve gas bill crisis, turn heat up on Peoples
Crain's Editorial - January 15, 2001
Considering the finger-pointing that's going on between politicians,
regulators and Peoples Energy Corp. executives, one thing is becoming
obvious: Fixing blame for the recent astronomical rise in natural gas prices
is much simpler than fixing the problem.
Nonetheless, all of these factions bear some responsibility for this
winter's monthly home heating bills, which, for many residents, are soaring
by hundreds of dollars over last winter's tabs. Each of these groups should
be held accountable for working to devise systems and strategies designed to
blunt future price spikes.
Make no mistake about it, this crisis will not melt away with the spring
thaw. Limited natural gas supplies and increased demand will continue to
pump up bills, rattle price stability and, along with other climbing energy
rates, become the economy's unwelcome "X" factor.
The weight of dealing with these pressures rests with the utilities,
especially Peoples Energy, the city's natural gas provider. To start with,
the utility's management must protect customers by anticipating escalating
demand, hedging risk and locking in gas prices when it can.
These are common business practices, used by corporations and even some
conservative utilities. In Michigan, for example, gas providers charge fixed
rates to customers and hedge their risk by purchasing gas years in advance
under long-term supply contracts. Right now, Michigan pays 29 cents per
therm, compared with the Chicago area's whopping 98 cents.
Peoples argues that it tried to lock in prices but was shot down when it
could not reach an agreement with the Illinois Commerce Commission (ICC),
which regulates the utility, on what the fixed rate should be. In walking
away from the deal, Peoples left customers with the current rate system and
dumped the burden of price fluctuations onto them.
In essence, instead of managing risk, it put its customer base at risk.
Considering that decision and the subsequent fallout, critics are asking
whether Peoples, a regulated monopoly designed to profit from the public's
needs, is acting in the best interest of its customers. Those paying heating
bills - which in some cases are as much as 300% higher than last winter's -
are right to say no, as is Mayor Richard Daley, who's outraged at Peoples.
More troubling are concerns that Peoples management may not be up to the
challenge of resolving this crisis, especially if its recent handling of the
political fallout is an indication. The company acts as if the public has no
right to question its tactics or motivations. And when the Chicago City
Council held a public hearing about the heating bills issue last week,
Peoples Energy Chairman Richard Terry didn't show up.
At these prices, it's not asking too much for the chairman of the gas
utility to explain his company's position. That's not a job meant for a
public relations executive or a consultant, who were among the Peoples
advocates who actually did attend the council hearing.
The ICC shoulders its share of the blame, too. It should have more zealously
monitored the gas supply situation and the utility's plans. Now, the
commission is playing catch-up by holding an investigation into what Peoples
knew about the soaring gas prices and when it knew it.
Let's get an answer to that important question and find out once and for all
if there is price-gouging going on.
Just as critical, however, is the need to foster a statewide regulatory
environment that encourages gas utilities to use more hedging, storing and
price-control strategies. If there is any ambiguity in state law about the
utility's ability to do this, then the General Assembly should change the
rules and open up the process.
Peoples management, regulators and politicians must get beyond the blame
game and find a way to better insulate the public from surprise spikes in
energy prices.
Otherwise, we're all just burning money.

Gas flare-up gives city hot idea: Become a utility
But co-ops mean high risks, mild rewards

Utility man: William Abolt, head of Chicago's Department of the Environment,
is examining ways to cut residents' natural gas bills. One option: opening a
city-owned buying co-op. Photo: Steve Leonard   
January 15, 2001
By Steve Daniels <mailto:sdaniels@crain.com>
It's easier said than done.
That's something an angry and frustrated Mayor Richard Daley is about to
learn as his staff begins investigating plans to take on some gas-purchasing
duties on behalf of city residents.
Mr. Daley is livid over what he contends is Peoples Energy Corp.'s failure
to anticipate the rising cost of natural gas, to mitigate a huge run-up in
residents' monthly heating bills this winter. He thinks the city can aid
bill-payers, and punish Peoples, by developing a system that will funnel
lower-cost gas to ratepayers.
But the track record of other municipal gas utilities, or buying
cooperatives, shows that such a system isn't likely to achieve more than
modest rate savings unless the city is willing to take on significant
financial risks.
To protect against the kind of price spikes that have hit customers this
winter, the city would have to buy futures, or long-term contracts, that
could leave it exposed if prices were to decline substantially.
In addition, the city would have to contend with thorny issues such as the
collection of overdue bills and potential cutoffs of service to non-paying
customers - activities for which municipalities are ill-suited.
Despite the risks, utility critics contend that city intervention is
appropriate.
"It's a creative approach, and we need those," says Martin R. Cohen,
executive director of the Citizens Utility Board, a consumer watchdog group.
"These are extreme times, and innovative approaches are called for."
Most municipalities that have gotten into the gas-buying business have been
unwilling to enter into long-term, fixed-price contracts that can shield
consumers against the sort of price spikes that have sent this year's
home-heating bills soaring nearly 300% compared with last year's. That's
because such arrangements can boomerang on customers, locking them into
higher-than-market gas costs if prices fall.
New York experience
"We wrestled with this: Should government really be in this business?" says
David Fountaine, village administrator in Hamburg, N.Y., a suburb of Buffalo
that formed a buying group for its residents in April 1999. "In our case, by
being in it, we've helped our residents."
Hamburg and nearby Sloan, N.Y., together hired a unit of Texaco Inc. to
supply gas to residents who signed up for the communities' program. New York
opened its natural gas market to competition five years ago, so residents
can choose either to remain with their gas utility or select an outside
marketer.
About one-third of Hamburg's 3,300 households buy gas from the village.
Those residents' gas bills last winter were 8% lower than the bills of
households that stayed with Buffalo gas utility National Fuel Gas Co. Last
month, when gas prices shot up, the village's price was 15% lower than the
utility's.
But Mr. Fountaine says the village takes no outsized risks, making no
long-term bets on the direction of gas prices. Rather, it simply relies on
its contractor to manage gas supplies as efficiently as possible.
Chicago officials are looking at programs like the one in the Buffalo area,
but also may be willing to take bigger risks to achieve greater savings.
"We know there are a lot of relatively new risk-management techniques being
used by large (natural gas) consumers," says William Abolt, commissioner of
the city's Department of Environment. "We want to know, what does the
industry do to manage (price) risk? That's what the reasonable company does,
but that's not what the local gas company does."
City officials need look no further than Downstate, where the Illinois
Municipal Gas Agency buys natural gas on behalf of 20 communities that
provide monopoly gas service to their residents. Last September, the agency
locked in prices for 50% to 75% of their customers' winter gas needs,
rolling with the market for the remainder.
That strategy is serving the agency's customers well. They're paying around
70 cents per therm - the measurement the gas industry uses for billing -
this month, compared with the 98 cents per therm that Peoples is charging
Chicago-area customers.
"There's no reason why investor-owned utilities couldn't do the same thing,"
says John Bell, the Municipal Gas Agency's general manager. "I think (a city
program) is a viable alternative if they don't like what they've got."
For its part, Peoples supports the city's desire to become involved in the
market. The move poses no threat to the utility because it doesn't profit on
gas purchases and still would make money on the delivery of the gas to
customers.
Meanwhile, the city is just beginning to consider alternatives. Although Mr.
Abolt says no system will be developed in time to help Chicagoans during
this trying season, a program most likely will be launched next winter.
Weighing the risks
The city's top priority will be to help low-income residents most vulnerable
to escalating heating bills, but all Chicago residents might be able to
choose between the city's program or remaining with Peoples. And one
possibility being considered would enable residents to choose either a fixed
price for gas before winter starts or rates that rise and fall with the
market.
While a fixed-price approach certainly looks good in hindsight right now, it
can have a downside if not managed properly.
In the Buffalo area, the two major private gas marketers offering fixed
prices to households recently dropped out of the residential market, forcing
some 23,000 customers to scramble back to the local utility for gas service.
To meet the unanticipated demand, the utility was forced to purchase gas on
the sky-high spot market.
It just such risks that Chicago officials are weighing. Says Mr. Abolt:
"This is not an overnight thing. You don't just snap your fingers and it
happens."


David I. Fein
Piper Marbury Rudnick & Wolfe
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