On Friday, I attended a meeting with Ken Lay and Karen Denne that Mike Peevey 
and David Freeman requested.  Mike Peevey was President of Southern 
California Edison before founding NEV (which he eventually sold to AES).  
Freeman is General Manager of LADWP.  

The Governor hired Peevey to be his chief energy advisor.  Freeman is the 
Governor,s chief negotiator responsible for signing power contracts on behalf 
of DWR now that the Legislature has passed AB1X and the Governor has signed 
it.  John Burton, the leader of the State Senate, is responsible for getting 
the Freeman the job of chief negotiator, but Peevey was clearly in charge.  

Also at the meeting was Vikram Budraja, former SVP of power systems and 
planning for Edison.  He,s now a private consultant that Freeman hired to 
help him with the contract negotiations.

Peevey asked for the meeting to urge Enron to respond to DWR,s RFP issued on 
Friday.  Peevey/Freeman want to announce a package of deals on Tuesday.  They 
implied that they,ve already got some deals done and expect to have 8+ deals 
to announce on Tuesday, though they gave no details other than to say that 
they,ve got a deal with Calpine (as reported in the press).  Their plan is to 
announce on Tuesday the names of the suppliers they,ve signed with, the total 
number of megawatts signed, and the average price per MW.  They are concerned 
that the media will want them to make public the details of each individual 
deal, which for obvious reasons they don,t want to do.

Peevey and Freeman also said that they don,t want to sign too many long-term 
contracts though they recognize that there,s a trade-off between term and 
price.

Ken Lay told them that Enron would respond.  ENA is preparing a response.  He 
also told them that EES was working on a plan to reduce demand at our 
customers, facilities and that the plan would be completed and ready for 
implementation very soon.

I,ve summarized the points that Ken Lay made and the responses from Peevey 
and Freeman:

It would be difficult to enter into contracts without some assurance that DWR 
is creditworthy.

Response from Peevey/Freeman:
AB1X provides DWR the funds necessary*beginning on Friday, Feb 1st*to 
purchase the power necessary to fill the utilities, short position.  Ken Lay 
pressed them on this point and Peevey insisted that AB1X provides the funds 
needed to pay suppliers.

The RFP should give suppliers maximum flexibility in coming up with proposals.

Response from Peevey/Freeman:
Be as creative as possible.  All offers will be considered (despite the 
language contained in the RFP).

The only customers who have been protected from California,s failed 
restructuring law are customers who chose another provider under Direct 
Access.  In addition, one of the quickest ways to help solve California,s 
shortage is to work with customers to reduce demand and develop on-site 
generation.  Taking away Direct Access and access to customers generally*as 
AB1X does*is therefore a dumb idea and must be reversed.

Response from Peevey:
He agreed but said that it was impossible to remove it from the bill.  He 
affirmed what we already know*that the head of the Senate oversight committee*
Debra Bowen*is working on a &clean-up8 bill to remove the prohibition.  In 
response to Ken Lay,s points that California needed to make sure that utility 
interconnection and stand-by rates didn,t continue to impede on-site 
generation, Peevey and Freeman said that the Governor understood the problem 
and was prepared to fix it.

Siting laws have got to be streamlined and California (i.e., the Governor) 
has got to credibly commit to the swift development of new power plants in 
order to push the forward curve down.

Response from Peevey/Freeman:
The Governor is scheduled to offer a plan this week that is targeted at 
expediting siting and development.

DWR should accept demand reduction bids at the same time that it accepts 
supply-side bids.

Response from Peevey/Freeman:
They agreed but said that there is extreme political pressure to announce the 
signing of some supply deals on Tuesday in order to prove to legislators that 
DWR will be able to keep the lights on, and at a &reasonable8 price.  They 
also need to sign some deals in light of the fact that the feds are very 
unlikely to extend the DOE order forcing suppliers to sell to the IOUs.  Once 
they,ve shown that they can manage the supply side, Peevey and Freeman said 
they want to quickly turn their attention to demand-side bidding.

These are the highlights.  I,d be happy to give more details on the Monday 
morning \call.

Best,
Jeff