My apologies for inadvertently leaving you off the distribution list.  It was 
late when I sent this out...

Additional thoughts that may not have been fully articulated in my first 
email and which Mike Roan and I discussed this morning...

To get CSP up to the 20% mark, we could do a preemptive default service deal, 
whereby we negotiate to take enough of CSP's customers to get them to the 20% 
within a customer class.  The deal could be with commercial or residential 
customers.  I don't think we could do much with industrials because the 
shopping credit is fairly low.  The shopping credits are as follows:

Residential Non-heat - 5.12
Total Residential - 3.94
Commercial - 5.88, 5.79, 4.06, 3.22 for GS-1, GS-2, GS-3, GS-4 respectively.
Industrial -  3.88, 2.01, 2.71

The customer load by class in CSP's service territory for 2001 as estimated 
in AEP's 2000 Longterm Forecast Report is as follows:

Residential - 6,351,000 MWH x 20% = 1,270,000 MWH
Commercial - 6,707,000 MWH x 20% = 1,341,400 MWH
Industrial -        3,241,000 MWH x 20% =    648,000 MWH

The numbers multipled by the 20% switch is the approximation of load that 
would have to switch to an alternative supplier to free-up CSP's generation 
and get it to market based rates.

Please feel free to provide comments and suggestions.
Janine





 



	Janine Migden
	04/26/2001 09:33 PM
		 
		 To: Greg Sharp/HOU/EES@EES, James M Wood/HOU/EES@EES, Dave S 
Laipple/DUB/EES@EES, Adam Cooper/DUB/EES@EES, Nicole Schwartz/HOU/EES@EES, 
John D Burrows/HOU/EES@EES, Harry Kingerski/NA/Enron@Enron, James D 
Steffes/NA/Enron@Enron, Charles Decker/HOU/EES@EES, Mike 
Roan/ENRON@enronXgate, Edward D Baughman/Enron@EnronXGate, Kerry 
Stroup/NA/Enron@Enron
		 cc: Richard Shapiro/NA/Enron@Enron, (bcc: Janine Migden/NA/Enron)
		 Subject: AEP - Brainstorming

Below is a concept to perhaps solve the problem confronting EES and the Ohio 
market.  It is a work in progress so suggestions and troubleshooting are 
welcomed.

Problem - There is uncertainty about EES's ability to pursue what had been 
perceived as value propositions in the Columbus Southern Power (AEP) and 
Cinergy markets because of changes in our price curves.  These changes 
reflect the difficulty of offering a physical product due to concerns 
regarding load following and imbalances.

Proposed Solution - Negotiate a power swap with AEP and/or Cinergy.

How the Proposal Works - Under the proposal,  EESI would enter into a 
contract with the customer to deliver power below the shopping credit, 
thereby offering savings to the customer.  EESI would then enter into a 
contract with AEP to provide the power including load following as it 
currently does (similar to the market support generation concept).  EESI 
could agree to pay AEP a modest sum (a few mils/kwh, for example) as an 
incentive to do the deal.   EESI would also enter into a contract with ENA to 
procure on- peak and off- peak replacement power for AEP at a cost equal to 
or less than the price EESI is charging to its customer, minus a percentage 
or millage which would be EESI's profit on the deal.  ENA would contract with 
AEP to provide the on-peak and off-peak power in the same quantities as AEP 
is providing to EESI  customers.

The term of the deal would be a maximum of five years of until the RTO 
adequately addresses load following, whichever comes first. The amount of the 
capacity swap could be limited to either a certain megawatt amount or be up 
to the amound required to get AEP to its 20%.   

Why AEP Might Consider the Deal - Currently, there is no customer switching 
in the AEP service territory.  Under SB 3, if less than 20% of the customers 
switch by the end of 2003, then the Commission must initiate a proceeding to 
address why.  The expected outcome would be to raise the shopping credit, 
which probably would not be an outcome AEP would seek.  If no switching 
continues to be the issue, the Commission could take action sooner.  Also, 
under SB 3, if 20% of customers switch, anytime after mid-2003, any party, 
including the utility, can petition the Commission to go to market based 
rates and end the market development (transition) period.  It is my belief 
that AEP will want to end the market development period as quickly as 
possible for two reasons.  First, they have very little stranded generation 
assets and will have probably recovered them by some time in 2003.  Their 
Regulatory Asset Charge (which is where all there stranded costs really are) 
is a surcharge that they will be allowed to recover irrespective of when the 
Market Development Period ends.  The most compelling reason for AEP to 
consider this proposal is that market prices are high and AEP is unable to 
take advantage of market conditions to the degree that they would probably 
like because their resources are dedicated to providing default power at low 
rates.  This proposal would give them a mechanism to free up generation to 
sell in the competitive market and earn a higher return.  Finally, the swap 
leaves AEP somewhat indifferent and the millage adder, EESI could add to the 
deal is just extra profit for them.

Benefits to EESI - EESI gets to do its deals, make a profit and get a strong 
foothold in the Ohio market.  EESI also gets a competitive edge over other 
marketers by securing physical capability.  Third, by moving AEP more quickly 
to market- based rates, this adds uncertainty in the market which Enron 
thrives on.  Fourth, once AEP goes to market-based rates they are required to 
conduct a competitive bid for default service.  This could potentially 
accelerate by as much as two and  a half years, the opportuntity for an EESI 
play as the default service provider.

Benefit to ENA - This provides ENA a large, longterm wholesale transaction. 
ENA's profit would be the difference between what EESI pays ENA (as described 
above) and the price at which it procures the power. 

Benefit to Customers - The customers get the benefit of lower rates and 
savings that are measured as the difference between the shopping credit and 
the price negotiated with EESI.  They are indifferent as to the source of the 
power.

Next Steps - Assuming this looks like an idea that can work, I would set up a 
lunch meeting with Rich Munzinski, Senior VP who negotiated the settlements 
to explore this concept with him.  Rich is very practical and very 
bottom-line oriented.  If he thinks this is good for AEP, he might be willing 
to carry the water internally on this.  Judging from several years of 
negotiating with him in Ohio and elsewhere, I think there is a reasonable 
chance he would be receptive.   I could also arrange a similar meeting with 
Jim Gainer, VP, legal counsel for Cinergy in the settlements.  I have a good 
relationship with Jim and find him to be practical and straightforward.  If 
he thinks this has merit, he will take it up with Jim Turner, president of 
Cincinnati Gas and Electric Company, who I also have a good relationship 
with, although not as close.

Please let me know your thoughts and suggestions.
Thank you,
Janine