Great questions. Some brief responses. We can discuss further tomorrow.

-----Original Message-----
From: Tom Beach [mailto:tomb@crossborderenergy.com]
Sent: Tuesday, October 23, 2001 11:55 AM
To: Dasovich, Jeff
Subject: Re: QF Presentation


Jeff --

As always, your proposal is creative.  After reviewing your presentation,
here are some tough questions that we can discuss tomorrow:

1.    Would the replacement energy from the market be obtained under
contracts of similar length and firmness as the QF contracts that the energy
replaces?  If not, why would the CPUC want to replace long-term, committed
QF power with short-term firm energy?

WOULDN'T HAVE TO, BUT PRESUMABLY THE REPLACEMENT POWER WOULD BE CONSIDERABLY MORE "DISPATCHABLE."

2.    Why would the CPUC want to replace long-term QF power over which it
has substantial regulatory leverage (through SRAC pricing) with market
energy from sources over which it may have less control?
PRICES WOULD BE FIRM AND WOULD REDUCE POWER COSTS TO CONSUMERS SUBSTANTIALLY AND AVOID THE PROTRACTED, COSTLY LITIGATION THAT GOES ON INCESSANTLY BETWEEN EDISON AND QFS. (AND WOULD AVOID ALMOST LOSING THE QFS BASED ON CONTINUED NEGATIVE ACTIONS BY EDISON.)  IN SHORT, ENDING THE HOLY WARS IS A GOOD THING.

3.    Are there 8,000 MWs of low-cost replacement energy available in
California, or in the WSCC with firm transmission to California?  How steep
is the supply curve for replacement energy?

FORECASTS SHOW ONE HELLUVALOT OF POWER COMING ON LINE.  HOWEVER, IF THERE WERE CONCERNS, THE MWS COULD BE CAPPED.

4.    After a QF is bought out, I assume that it would simply operate in the
electric market as a merchant plant, if it continues to operate to provide
on-site power and thermal energy.  Is this correct?

YES.

5.    How sensitive are your calculated ratepayer and QF benefits to changes
in the relationship between SRAC (i.e. gas) and electric market prices?

OBVIOUSLY, VERY CONNECTED.

6.    Assuming that there are both ratepayer and QF benefits from QF
contract buyouts, why is there a need for a formalized auction process, when
the same benefits might be captured through bilateral negotiations (such as
the QF buyouts done to date)?

BILATERAL NEGOTIATIONS DO NOT EXIST.  THEY ARE A MYTH.  THIS TRIES TO GET AROUND THAT IMPASSE.

7.    Doesn't your proposal require the utilities to be back in the power
procurement business?  If not, why not?

THAT'S A GOOD THING.  AND NO MORE THAN THEY WOULD BE OVER THE LIFE OF THE QF CONTRACTS.

As you perhaps can tell, my questions focus on whether now is the right time
for such a broad plan to buyout QF contracts.

THERE ARE ALWAYS REASONS TO CONCLUDE THAT NOW IS NOT THE RIGHT TIME.  ON THE OTHER HAND, THERE'S NO TIME LIKE THE PRESENT.  AND IF A QF HAS THE OPTION OF 1) RECEIVING THE NPV OF THE QF AND 2) RETAINING CONTROL OF THE ASSET, I'VE STRUGGLED MIGHTILY TRYING TO FIND A DOWNSIDE FOR THE QF.  LOOK FORWARD TO TALKING TOMORROW.

Talk to you tomorrow,

Tom

-----Original Message-----
From: Dasovich, Jeff <Jeff.Dasovich@ENRON.com>
To: tomb@crossborderenergy.com <tomb@crossborderenergy.com>
Date: Tuesday, October 23, 2001 8:41 AM
Subject: QF Presentation



Tom:
Here's the presentation that we'll go over with you tomorrow.
If you have any questions between now and then, just give me a call at
415.782.7822.
What number should I call you at tomorrow?

Best,
Jeff


>  <<QF Auction General.ppt>>
>
>


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