---------------------- Forwarded by Steven J Kean/HOU/EES on 08/18/2000 02:22 
PM ---------------------------


Steven J Kean
08/14/2000 05:42 PM
Sent by: Maureen McVicker
To: Executive Committee
cc: Gavin Dillingham/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Joseph P 
Hirl/AP/ENRON@ENRON, Jeannie Mandelker/HOU/ECT@ECT, Nicholas 
O'Day/AP/Enron@Enron, Mark Schroeder/LON/ECT@ECT, Richard 
Shapiro/HOU/EES@EES, James D Steffes/HOU/EES@EES 
Subject: Talking Points re "reregulation" in California

As I promised this morning at the executive committee meeting, below are some 
talking points for your use.

Overall message:  the market is working, regulation is not.

In California, peak demand rose by 10% over the last 4 years while new 
capacity grew by only 2%.  But, as you would expect, the market responded by 
proposing 8,000MW of new generation - - more than enough to offset the peak 
demand growth.  The regulatory process, at both the state and local level, 
has failed to site this new generation.  The problem is regulation, not 
deregulation.

When San Diego customers began experiencing the effects of higher prices, 
Enron responded with a fixed price which would have shielded San Diego 
customers from price volatility and provided prices below their current 
summer levels (Enron's price was about $55/MWH).  After publication of 
Enron's offer, nine other companies made offers.  Again, the market responded 
where regulation failed.  San Diego has not accepted any of these offers 
because of regulatory/legislative restrictions on its ability to buy outside 
of the PX (i.e. the spot market).

In markets where siting is easier, suppliers have moved to build additional 
generation.  Enron built 3 plants in response to the 1998 price spikes.  
Those plants were planned, sited and built in less that 12 months - - in time 
for the summer of 1999.  Where regulatory hurdles are lower, the market 
responds.

The solution to current pricing and reliability issues is more competition 
not reregulation.  Policy makers should:

Open the transmission grid so that power can get from where it is to where it 
is needed.

Expedite interconnection of new generation.

Expedite siting of new facilities.

Give customers a choice, so that they have better access to demand side 
solutions.


Also attached is a more detailed discussion of California, prepared by Jeff 
Dasovich of our San Francisco office.