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----- Forwarded by Steven J Kean/NA/Enron on 10/20/2000 09:59 AM -----

	Rob Bradley
	10/19/2000 12:53 PM
		 
		 To: Michael Terraso/OTS/Enron@ENRON
		 cc: Steven J Kean/NA/Enron@Enron, Joe Allen/NA/Enron@Enron, Kenneth 
Lay/Corp/Enron@ENRON
		 Subject: Economics Study on Proposed Houston SIP--Preliminary Results

You might mark your calendar for a lunch (12-1:30) at the Hyatt downtown on 
Wednesday December 13 where Barton Smith of UH and George Tolley of the U. of 
Chicago will present the findings of their economic study.  The Houston Forum 
event will be part of the Kenneth L. Lay Lecture Series in Global Economics 
at the University of Houston.  (I will have a table for Enron.)

The authors presented their preliminary results to us this week, and the 
total benefits of the planned ozone reduction (all SIP measures as currently 
proposed) are below $100 million (we are indoors most of the time that bad 
air days are occurring since it is typically very hot), and the costs are 
around $5 billion out to 2010.   Lots of caveats to this conclusion including 
the assumption of today's best technology but no more.  The high costs 
include a "last mile" problem that the proposal of the Partnership's Business 
Coalition for Clean Air (BCCA) avoids (such as no noon-to-midnight 
construction, a 75% average point source reduction to allow for trading and 
future permits instead of a 90% reduction, etc.).

The effect on Houston is to reduce our forecast economic growth but not 
eliminate it.  Real wages are forecast to fall by some 5% or more under the 
current SIP versus without it.  Total job loss will be over 100,000--about a 
1 and a half years of growth out to 2010.   This "shock" will be around 
one-half of what Houston went through after the oil price crash in 1986 
according to Dr. Smith.  One might say that slower growth and spreading the 
pollution around (some of our refinery/petrochemical growth going elsewhere) 
is not the end of the world, however, if a more cost-effective SIP is chosen.

It will be several weeks before the results are final (and the election 
over), at which time an executive summary will be released.  The Mayor's 
office and TNRCC will be briefed first.  The luncheon will be the formal 
unveiling of the study with explanation, but I expect press coverage of the 
study next month.

As head of the economics working group, I have tried to ensure that a 
top-notch analysis was done without an industry bias.  The results are 
considered conservative by the authors all things considered and in line with 
the peer-reviewed literature on costs and benefits.  The study is not 
intended to be a "whining" study but to give us realistic expectations and to 
(naturally) bring into review some "last mile" problems where certain SIP 
measures are the least cost effective.

These preliminary results are confidential given the political cycle we are 
in and should not be shared externally.

- Rob