Richard Shapiro
	02/21/2001 04:51 PM
		 
		 To: Ginger Dernehl/NA/Enron@Enron
		 cc: 
		 Subject: California

Please forward to entire group- these are recent talking points re: 
California.
---------------------- Forwarded by Richard Shapiro/NA/Enron on 02/21/2001 
04:50 PM ---------------------------
From: Jeff Dasovich on 02/21/2001 01:31 AM
Sent by: Jeff Dasovich
To: Richard Shapiro/NA/Enron@Enron, skean@enron.com, Paul 
Kaufman/PDX/ECT@ECT, Susan J Mara/NA/Enron@ENRON, Sandra 
McCubbin/NA/Enron@Enron, Harry Kingerski/NA/Enron@Enron, Leslie 
Lawner/NA/Enron@Enron, James D Steffes/NA/Enron@Enron, mpalmer@enron.com, 
Karen Denne/Corp/Enron@ENRON, Linda Robertson/NA/Enron@ENRON, Joe 
Hartsoe/Corp/Enron@ENRON
cc:  

Subject: DRAFT Message Points for Hertzberg Conversationq

Here are some draft message points.  Please review.  Apologies in advance is 
they're a little rough, but these guys are getting bothersome at this point.

Best,
Jeff



Recent legislative proposals designed to 1) give the State the role of 
developing, owning and operating power plants in California (SB6X--Burton) 
and 2) buy PG&E and Edison's electric transmission assets (SB33X--Burton) are 
taking California in the wrong direction and won't solve the State's 
electricity crisis.
Two other recently introduced new bills are equally disturbing and 
counter-productive:  AB60X (Hertzerg) would make plant certification 
contingent upon the developer agreeing to sell the power to the state at 
"just and reasonable, cost based rates."  SB39X (Spier) would classify power 
plant as public utilities and would dictate plant operations to a very 
significant degree.
The proposals are significantly outside the mainstream and offer a political, 
as opposed to an economic, commercial, financial, or technical solution.  
Around the rest of the world, governments are privatizing these industries, 
relying on efficient capital markets to provide both the infrastructure  and 
the products and services that derive from that infrastructure.
Astonishingly, California is moving in the opposite direction, toward a 
state-owned and operated, centrally-planned industry.
The notion that a state takeover of the industry is the only choice that 
California has left is false, will lead to a seriously flawed economic 
policy, and will result in consumers paying higher prices for lower quality 
services for years to come.
As a political solution, these bills will not increase supply, decrease 
demand, or get the utilities back on their financial feet.
In fact, they are likely to do just the opposite:
They will result in a significant expansion of the state bureaucracy and 
create additional burdens on the state budget.  
The transmission buyout contemplated in SB33X is extremely complex, requiring 
buy-in from state and federal authorities, bondholders, creditors and 
others.  
California will be forced to spend an enormous amount of time and resources 
trying to achieve the deal, with no certainty of success, particularly in 
view of PG&E's public opposition.  
There is no evidence that the State has any expertise in overseeing a TX 
system as large and complex as the ones possessed by PG&E and Edison, even if 
it did manage to complete the transaction.
Nor have any estimates been made regarding how much additional capital 
California will be required to invest in what is generally viewed as a 
transmission network in desperate need of repair and upgrading.
In the meantime, summer approaches, and the gap between supply and demand 
remains staggering.  
This complex, costly and litigious alternative will in no way reduce the 
serious threat of blackouts that California faces this summer.
When those blackouts arrive*and they will unless bold action is taken swiftly*
consumer will wonder why policy makers spent their time negotiating the price 
of utility transmission assets.
As important, it is extremely difficult to see how the transmission buy-out 
offers creditors a better alternative to bankruptcy court.  
Indeed, when viewed against the uncertainty of achieving the transmission 
buy-out, particularly in light of the politically charged atmosphere in which 
the debate is taking place, creditors seem increasingly inclined to opt for 
the relative certainty that comes with a bankruptcy court. 
If that happens, the State loses a significant amount of influence over the 
situation.
Moreover, SB6X squarely inserts the State into the power plant business, 
despite the face that there is abundant private capital ready and willing to 
invest in California*IF California provides the investment environment to 
attract that capital. 
Unfortunately, these bills create an environment that is hostile toward 
investment capital.
Distressingly, the state could finance, develop, own and/or operate power 
plants, at the same time that it controls the monopoly transmission system. 
In addition, any company that uses the newly-created &Power Authority,s8 
financing authority would have the price that it can charge for power set by 
the &Authority,8 or, if the developer is a utility, by the California PUC.
In sum, the biggest player in the power business*the State*will control the 
network that power suppliers must use to get their power to market.
The state will control the price to use the network, and in many cases it 
will also control the prices power suppliers charge for power services.
This scenario makes the old vertically-integrated monopoly structure look 
inviting.
Capital markets will run from this &solution8 and put capital to more 
productive uses outside of California.
Under this proposed &solution8 only IOUs and municipal utilities will build 
plants, and the state will be forced to finance them.  
That,s the same recipe for inefficiency and waste that got California to 
electricity prices that were 50% higher than the national average.  
We,ve been down that route; it,s been given chance after chance to succeed, 
and it,s failed.  State-ownership and intrusive regulation haven,t worked in 
the past, and they won,t work today.
This package of bills will increase the risk of blackouts this summer; 
increase the time it takes to close the gap between supply and demand in 
California; increase the likelihood of bankruptcy; and force businesses to 
look elsewhere to locate and/or expand operations, all of which put 
California,s economy at risk.
The real solution is to succeed in doing what California failed to do the 
first time*lay the groundwork for truly competitive retail and wholesale 
markets and foster an environment designed to foster investment, invest, 
rather than chase it away. 
---------------------- Forwarded by Richard Shapiro/NA/Enron on 02/21/2001 
04:50 PM ---------------------------


Susan J Mara
02/21/2001 04:22 PM
To: Mark Palmer/Corp/Enron@ENRON
cc: Steven J Kean/NA/Enron@Enron, Richard Shapiro/NA/Enron@Enron, James D 
Steffes/NA/Enron@Enron, Sandra McCubbin/NA/Enron@Enron, Harry 
Kingerski/NA/Enron@Enron, Jeff Dasovich/NA/Enron@Enron 

Subject: Message Points

Mark,

I have passed the following message points out to some colleagues to help 
them respond to reporters calls.  I put it together by smushing together 
jeff's and my points.  It addresses all four bills of concern.



Sue Mara
Enron Corp.
Tel: (415) 782-7802
Fax:(415) 782-7854