----- Forwarded by Jeff Dasovich/NA/Enron on 03/07/2001 11:28 AM -----

	"Daniel Douglass" <Douglass@ArterHadden.com>
	03/07/2001 11:27 AM
		 
		 To: <Barbara_Klemstine@apsc.com>, <Bob_Anderson@apses.com>, 
<Vicki_Sandler@apses.com>, <berry@apx.com>, <dcazalet@apx.com>, 
<billr@calpine.com>, <jackp@calpine.com>, <Ken_Czarnecki@calpx.com>, 
<gavaughn@duke-energy.com>, <rjhickok@duke-energy.com>, <gtbl@dynegy.com>, 
<jmpa@dynegy.com>, <jdasovic@enron.com>, <susan_j_mara@enron.com>, 
<Tamara_Johnson@enron.com>, <curt.Hatton@gen.pge.com>, <foothill@lmi.net>, 
<camiessn@newwestenergy.com>, <jcgardin@newwestenergy.com>, 
<jsmollon@newwestenergy.com>, <rsnichol@newwestenergy.com>, 
<nam.nguyen@powersrc.com>, <Curtis_L_Kebler@reliantenergy.com>, 
<rllamkin@seiworldwide.com>
		 cc: 
		 Subject: GAO Investigation

On Monday, 2 March 200, U.S. Representatives Jay Inslee and Peter Defazio 
(OR-04) requested that the investigative arm of Congress research whether 
energy producers have been "gaming the market" and unfairly jacking up energy 
prices in the Western United States.  "My constituents have seen huge 
increases in their energy prices, and I have seen some reports suggesting 
that energy producers have deliberately withheld energy from the market in 
order to drive prices even higher.  I am requesting that the GAO investigate 
this possible market manipulation, and determine whether these reports are 
accurate," said Inslee. 
 
Following is text of the Congressmen's letter to the General Accounting 
Office:
 
March 5, 2001
 
David Walker
Comptroller General of the United States
General Accounting Office
441 G Street NW
Washington, DC 20548
 
Dear Mr. Walker:
 
We are writing to request that the General Accounting Office (GAO) 
investigate whether power shortages and the subsequent skyrocketing energy 
prices in California, which has had serious ripple effects throughout the 
Western United States, was due to market manipulation by energy producers.  
We are concerned about allegations that energy producers have been 
manipulating the market by pulling generators offline for no justifiable 
reason, thus creating an artificial scarcity of energy in order to drive up 
prices.
 
The apparent energy shortages in the Western United States will undoubtedly 
raise issues as to whether we as a nation change our policies toward 
developing our energy resources and whether we change the manner in which we 
currently operate Federal hydroelectric facilities.  For example, many 
elected officials have used the energy crisis as an argument to drill for oil 
in the Arctic National Wildlife Refuge, and to open for oil and gas 
exploration millions of recently protected National Forest lands.  To answer 
these important policy questions which will be considered in the House 
Committee on Resource, a committee on which we both sit, we believe that we 
must have an accurate understanding of the causes of the current energy 
crisis. 
 
We recognize there are many contributing factors to the current energy 
crisis, including high natural gas prices, a lack of generation and 
transmission capacity, and California's failed effort to deregulate its 
energy market. 
 
While the economics of supply and demand lead to the conclusion that the 
scarcity of generation in California has contributed to the high energy 
prices, it is not clear why there is such a scarcity.  Many analysts point to 
such variables as inadequate water supplies and the need for increased 
maintenance as the cause for so much generation unexpectedly being taken 
offline in California.  According to information we have seen, however, these 
factors do not come close to fully explaining the scarcity of energy supplies 
in California. 
 
For example, it is our understanding that in an absolute low water year, 
California has more than 45,000 mW of generating capacity available.  
According to the Western Systems Coordinating Council (WSCC), the entity to 
which all power generators in the West are required to report their power 
availability, California has been importing more than 2,000 mW of power, 
while recent peak demand in California on those same days has hovered around 
only 30,000 mW.  While almost 10,000 mW of this 17,000 mW difference is duly 
accounted for as being offline either through planned or unplanned 
maintenance, there is apparently about 4,000 to 8,000 mW of potential 
generation in California which is not online for reasons that remain 
unexplained.
 
Meanwhile, prices for wholesale electricity have been going through the roof, 
with some generators and marketers of energy in California earning record 
high profits.   These energy companies have insisted they are operating their 
generators at maximum capacity and are not manipulating the market by pulling 
generation offline.  We have read evidence to the contrary.  For your 
reference, we have enclosed a report by the private consulting company 
McCullough Research Group, and a research paper by Massachusetts Institute of 
Technology economics professor, Mr. Paul Joskow.
 
The Federal Energy Regulatory Commission (FERC), the federal agency 
responsible for ensuring that energy costs are "just and reasonable," has 
studied the energy crisis in the West.  As you may know, while FERC concluded 
that energy prices in California are not "just and reasonable," based on a 
preliminary inquiry, they determined there is insufficient evidence of market 
manipulation as a contributing factor to the high prices.
 
Given independent reports that are at odds with FERC's conclusions, we are 
concerned FERC has not done an adequate job in its investigation of possible 
market manipulation.  Therefore, we request that you:
 
Compare the methodology used by FERC with that of Professor Joskow.
 
Determine whether or not the FERC methodology and investigation were thorough 
enough to determine whether generating capacity has been withheld without 
legitimate reason. 
 
Analyze whether California's deregulation of its electric utility market 
created a regulatory environment in which a small number of energy generators 
or marketers are more easily able to manipulate power prices by withholding 
generation.
 
Thank you for investigating this matter. Due to the time critical nature of 
this issue, it is our hope that your office can make this investigation a 
high priority.
 
Sincerely,
 
JAY INSLEE
Member of Congress 
 
PETER DEFAZIO
Member of Congress