You may wish to quickly skim through the details below, of the Government's 
decree (the final action on the Endesa/Iberdrola merger), modifying slightly 
what the Competition Authority did on the case.  If you wish to skip down, 
you may go to the heading "Commercialisation" (the Spanish term for 
marketing/supply function).  There you will see the outlines (details to 
follow) of what I described in the Staff meeting today, which is the 
limitation on the merging incumbents being able to only obtain 60% of the 
business of new/renewing customers, i.e., those customers must seek services 
from other suppliers.  I am not aware of such a concession being extracted 
anywhere else before, and this is all due to the efforts of Alfredo 
Huertas.   It should bode well for businesses like Enron Direct, and toward 
the development of a contracts market where others will need to trade with us 
and seek our risk mangaement skills.  let me know if you need more.   mcs 
---------------------- Forwarded by Mark Schroeder/LON/ECT on 05/02/2001 
16:25 ---------------------------
   
	
	
	From:  Alfredo Huertas                           02/02/2001 17:15
	

To: Ignacio Soneira/MAD/ECT@ECT, Gonzalo Gomez-Navarro/MAD/ECT@ECT, Eric 
Gonzales/LON/ECT@ECT, Mariano Gentilini/LON/ECT@ECT, Jose Luis 
Gomez-Banovio/LON/ECT@ECT, David Gonzalez/LON/ECT@ECT, Paul Mead/LON/ECT@ECT, 
Pedro Del Rio Alcalde/LON/ECT@ECT, Robert Saltiel/LON/ECT@ECT
cc: Mark Schroeder/LON/ECT@ECT, Peter Styles/LON/ECT@ECT 

Subject: Spanish Govt. authorises the merger, but...

We do not know the particulars of the following press headlines (the decree 
will be published on Monday). Comments below s/t the actual drafting of the 
decree:

Generation

Market share of 42% of generation: We do not know if this is expressed (in MW 
or MWh, etc...). Still unknown if this includes special regime generation; if 
yes, the market share of ordinary regime generation may go down to 35% (we 
insisted on 30%).

Divestiture by auction, as we proposed.

This share could not be increased until 2005, but no aparent limitation on 
new built generation for the merged.

Particulars about the mix are still ambigous.

Transmission

Reduction on the participation on OMEL and REE to 10%

Distribution

Market share of 48% of distribution: As above, we do not know yet how this is 
expressed, but Vicent was suggesting last Tuesday that a "meaningful" 
criteria was going to be applied, as opposed to the "meaningless and biased" 
suggested by the utilities and the CNE. We recommended 40% as compared to 66% 
proposed by the utilities.

Commercialisation

Market share of 40% of new + renew contracts on the whole Spanish territory. 
On the top of this, the merged company's market share cannot go beyond 60% of 
new + renewed contracts on its own distribution area. Although our proposal 
of applying these same limits to existing and new contracts has not gone 
through (there were actually legal problems involved on that), we could claim 
a great deal of "responsibility" on implementing the second boundary relative 
to their own distribution area. (We actually had to convinced Sempra and 
Aquila to support this initiative).

Although we do not know yet how the % is expressed (as above), it is very 
important the second limitation on their own distribution territory, in order 
to spur retail competition and tackle distcos' discriminatory behaviour on 
access and metering issues. Recall that by 2003 all customers are eligible, 
and this limitation will last until 2005. 

CTCs

CTCs rights are passed to new owners, but the capital gains associated to 
divestiture to offset CTCs rights of the seller. We battled for this last 
piece, but not for the transferral of CTC rights to new owners. We will need 
to analysed this more carefully in the decree itself.

No more securitisation! The 4.5% of the tariff, which was devoted to fund 
CTCs has been eliminated. Therefore, we come back to the early days 
mechanism. Implications: 
  1) the CTC mechanism will be more transparent now, but still opaque 
overall; 
  2) Will the 1998 CTC write-off be re-established, that is, will CTCs 
increase? More details on Monday

Penalties

 ?12,020 per day where the conditions above are not satisfied.

 
a.