could you please fax this text to steve and mark?  thanks a million.  jeff
----- Forwarded by Jeff Dasovich/NA/Enron on 01/25/2001 02:57 PM -----

	"Katie Kaplan" <kaplan@iepa.com>
	01/25/2001 12:15 PM
	Please respond to kaplan
		 
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		 Subject: Transcrip of Davis' speech last night


            TRANSCRIPT OF GOVERNOR DAVIS WITH DEPARTMENT OF
                                   WATER RESOURCES OFFICIALS

     SACRAMENTO

     At a press conference today, Governor Gray Davis, officials from the
Department of Water Resources (DWR), and Legislators addresses the DWR
Internet based auction for long-term electricity contracts. The following is
a transcription of the governor's comments:

     Governor Davis: "For the remarks on the long-term bidding contracts, I
am going to have Director Hannigan make those comments. I want to thank the
work of the  bipartisan team standing behind me. We are tied at the hip. We
are making progress. We are keeping the lights on. We are assuring people
that prices will be affordable and we are making real progress in securing
good, well-priced long-term contracts. I am very positively inclined as a
result of these bids. It is good news, I am enthusiastic, and it tells us we
can stay within our general parameter, which is to provide power within the
rate structure consistent with aggressive conservation and aggressive
efforts to put more supply on line. This, as you know, is at least a three
corner billiards shot, it may be more difficult than that. But so far the
signs are positive, I want Director Hannigan to just give you a brief
summary of the results of the bidding process and then I will give you a
couple more comments and then I will ask the legislative leaders to add
their commentary."

     Director of the Department of Water Resources Tom Hannigan: "Thank you
Governor, as the Director of the Department of Water Resources, I am given
responsibility for trying to keep the lights on. Our fundamental
responsibility here is to purchase power at the best possible prices for
California consumers and businesses, and to protect the state's ability to
purchase power at the best price. We are only able to release general
information about the bid opening today. There were 39 bidders, the majority
of them were compliant, the weighted average which included all of the times
of the days and nights of the year except for super-peaks was 6.9 cents per
kilowatt. The useful sample across all times of the day across the spectrum
of the year and we are quite pleased with the initial results. I look
forward to looking through bids and developing some long-term contracts."

 Governor Davis: "I would like to make a further announcement of three
people who have been advising me over the last several days, one is Mike
Peevey, who is serving as my unpaid special advisor on a whole range of
matters. He has had a discussion with the CEOs of the two utilities in
question, he has sat in several meetings, he has a long history with the
energy business, of which he is no longer a participant in or a shareholder
in. His advice and counsel is very much appreciated and I thank him for his
assistance thus far and what I know will be future assistance of great
consequence.

   "I also want to announce David Freeman, the General Manager of the Los
Angeles Department of Water and Power, has agreed to serve on a short-term
basis, probably a month to six weeks, as a consultant for the Department of
Water Resources. His job, working with Mike Peevey in this instance, is to
get the very best possible deal for the ratepayers of California. His job
will be to take the most favorable bids that came in today and consummate
those into contracts to have unilateral discussions -- assuming we get the
authority to do that -- for more good bids and if necessary, to go out and
request more bids.

     "As anybody knows, in the power business you don't try and acquire all
your long-term power at once. It's done sequentially over time, that's the
methodology that assures the best price and best quantity of power for the
rate payer. Mike, I want to make clear, will be advising on a whole range of
issues, and in addition to that, he'll be working with David Freeman.
David's exclusive responsibilities will be to advise the Department of Water
Resources on additional long-term contracting and how to consummate the best
bids that were offered today.

     "Obviously if you have an average weighted price of 6.9 cents per
kilowatt hour, that means that there were some bids below that and some bids
above that. We hope we  will be able to consummate contractual relations
with some of the bids that were below the average price, as well as move
aggressively forward in the future.

 "The final name, I am very pleased to say that we have been consulting with
is Frank Zarb. Frank is the CEO and chairman of the NASDAQ and he was
President Ford's energy czar during the first oil and gas price crisis in
the 1970's. He has subsequently been the CEO of Smith Barney, and he has
years of experience in the utility business. He was tasked by Governor
Pataki last year to be the temporary CEO of the Long Island Power and Energy
Authority. He is well-versed in this area, and he will  be advising us on a
range of matters, including ways in which to keep the utilities viable in
the future and keep us appraised of market and financial expectations in
that regard. These three people have been advising us in the recent days and
will continue to do so.

     "With that I would like to call upon..." (members speak)

     Question and Answers:

     "Thank you, we'll be happy to take a few questions."

     Question: "Will these bids assure that you'll be able to provide
electricity without raising rates?"

     Governor Davis: "That has been my hope and it continues to be my
expectation. This is a very good step. Obviously we have a way to go to
finalize the best bids made
     today and to secure additional power to complete the entire profile
necessary. This is a very good step, and all of us are pleased with the
preliminary results."

     Question: "It's not an assurance though, the bids aren't so good that
you are sure that you'll be able pull this off without a rate increase."

     Governor Davis: "No, but that continues to be my hope and expectation.
There was nothing about the bidding process that discourages me, everything
encourages methat we can live within the framework we've all described.
Everyone has mentioned the three component parts -- Native Generation, QF's
and what we call the net short. And the first two are well within the rate
structure and it's our expectation that we can get the third piece within it
as well."

     Question: "Governor, was there enough power bid in the short term to
keep the lights on say to February without going into the spot market?"

     Governor Davis: "Let me ask Mr. Hannigan. As I said, I want to protect
the integrity of the bid process. That's why the only information I asked of
the Director is the information he's already described to you, so you're
going beyond my pay grade at the moment, I have to call on the Director."

     Director Hannigan: "Well as I said at the outset, I have not seen the
bids and I don't know what the numbers are. It is a sealed bid process and
we're respecting the
     integrity of that. But we have been buying power both on the day ahead
market and the real time market, hourly market, real-time market. It's a
function of trying to work
     these generators down, get them to sell us power at the cheapest price
we can get from them, and through that we hope to make it through the first
of February. I think
     we're looking a little farther than that."

     Question: "The Legislature has set aside money to get us through
February 2. My question is whether these contracted governments."

     Director Hannigan: "These contracts really don't relate to the
short-term getting through that time frame."

     Question: "When does the long-term begin?"

     Director Hannigan: "Well the long-term begins, of course, when the
contract date suggests they begin, but we don't know what that will be at
this point. It could be in a
     week, it could be shorter. Some of them it could be longer, it depends
on how long it takes to negotiate them with them and what kind of terms you
get."

     Question: "Do you think based on these numbers that you could reach the
point described frequently as 5 1/2 cents?"

     Director Hannigan: "I don't know that. That is the same question as can
you reach a point where you don't raise the rate."

     Question: "That apparently is the point in which you don't raise the
rate?"

     Director Hannigan: "Yeah, so I don't know that Dan."

     Unknown Speaker: "I don't know that that is correct. Built into that
presumption is that you don't get any relief on the QF's which we're now
paying between 16 and 19
     cents to the extent that you get relief on the QF's then that 5 1/2
cents can raise without a rate increase."

     Question: "Does that mean that, Hertzberg, you don't need your
front-loaded program which leaves the bonds up front to cover the initial
cost? You don't need the
     program at all?"

     Speaker Hertzberg: "No, I think you do in order to use revenue bonds to
pay for the near term. Obviously, yes, the answer is yes, you do need it. It
will be smaller."

     Question: "The near terms are going to need those revenue bonds?"

     Speaker Hertzberg: "Well yeah, you need them to take out that bump in
the near term. But how many bonds you issue depends upon what these prices
are. But yeah,
     you are going to need some facility clearly just as a means to collect
the money back from the customers. There still has to be some mechanism in
place to do that."

     Question: "Governor do you agree with having to use revenue bonds up
front?"

     Governor Davis: "I believe it is an appropriate mechanism, we'll have
more to say about that in the next couple of days, but we have been in
constant contact with all the
     people behind me as well as Assemblyman Campbell, who we were visiting
earlier tonight. And we understand that what we're looking forward to is
essentially price
     stabilization. So in the short-term, price paid by energy customers is
going to be less than the actual price of energy. In the long-term, the
     price of energy will fall but the price will remain constant to the
consumers. It is our collective expectation that if we can tell the business
and residential consumers of the
     state that their price will stay relatively stable over a sustained
period of time, that they will see that as a good deal. Do you understand
what I'm saying? Obviously if you
     look at the spot market, you can see today's prices considerably higher
than the 5 to 5 1/2 percent range that we originally thought was necessary
to stay within the
     current rate structure. Because the negotiations led primarily by
Senator Battin and Assemblyman Keeley were so successful in the QF part of
the equation, we have a
     little more flexibility on the long-term contracting although not a lot
more flexibility.

     Question: "Is there enough energy bids to cover the net short
positions? Especially this summer?"

     Governor Davis: "It is my understanding that we had a very
representative bid and that's the only information that we've been shared...
We had a good deal of power bid
     for and it was a very good sample and certainly one that gives us all
optimism."

     Question: "What I mean to ask is this 10,000 Kilowatts or Megawatts
that possibly the state's looking for? Is it enough to cover that gap?"

     Governor Davis: "As I said before, it would be a mistake. I'm talking
in general terms now. It would be a mistake for the state to try and acquire
all its power at once. That
     would drive up the cost and saddle the taxpayer with higher costs than
are necessary. The Department of Water Resources knows that and they are
proceeding
     appropriately."

     Question: "Governor, just for our viewers very simply, is it reasonable
to expect that some of these long-term bidding contracts will start next
week? Next month? When do
     you think?"

     Governor Davis: "We're hopeful to get authority from the Legislature
within a week to begin consummating the better proposals that were received
today. Under the
     guidance and advice from Mike Peevey and David Freeman, we expect the
Department of Water Resources to move aggressively to enter into unilateral
arrangements
     with other potential bidders, go back to ones whose bids were initially
rejected to see if we can negotiate better prices. We're on this like white
on rice, we are determined
     to get the best prices as soon as we can. But it is a mistake to try
and get it all done within a week. We'll end up paying more for it than we
have to."

     Question: "Is there any possibility that you'll run out of cash before
you sign the contract?"

     Governor Davis: "It's my expectation and hope that we will not. We have
obviously emergency authorities so we can draw upon but it is my expectation
and hope that we
     can live within the resources allocated to us on a short-term basis and
then have the authority to switch over to long-term contracting."

                                                             ###



Katie Kaplan
Manager of State Policy Affairs
Independent Energy Producers Association
(916) 448-9499