gngr
713-853-7751
----- Forwarded by Ginger Dernehl/NA/Enron on 03/15/2001 11:18 AM -----

	Margaret Carson
	03/15/2001 10:56 AM
		 
		 To: Ginger Dernehl/NA/Enron@Enron
		 cc: Lorna Brennan/Enron@EnronXGate
		 Subject: PLEASE DISTRIBUTE TO THE GROUP. THANKS.

The FT/RDI   March  14  California Conference  call discussed the plight of  
California
utilities and customers.  California  is  a state with IOUs on the verge of 
bankruptcy,
that  wants  to  buy up the utilities power grid  assets that is now seeing, 
after more  than
a  year of  constant  natural gas  price hikes,  gas prices starting to 
decrease.  There  are 3 ways 
for California  to get out of  this electricty supply bind  and ease off its 
power price spikes:  add
generation over capacity;  have retail users   reduce peak use consumption  
and find
methods  to  use  cheaper storage of power.  The latter is not  available and 
the first 
will  eventually  be  available  medium  term.  Thus  dynamic pricing 
programs  could 
help  the retail  power decrease  strategy.  The  California  crisis is 
indirectly  causing several
other states  to stall their  deregulation progress, namely  Oklahoma, 
Arkansas, Nevada and Missouri.

Fifty  percent  of US power load is used by  1 percent  of customers--the 
industrials.
In California, the industrials  are only  one-third of  one percent  of 
customers  and they use
25 percent  of  the  electricity in the  state.  Going  to this industrial 
market  and using
technoogy and pricing to   conserve  electricity  use would go a long way  
towards reducing peak
demand use.   RDI  believes the gas infrastructure in the US is  there for  
100  GW of new
gas power plants, but many local hookups must be done to meet  super peak 
days on
a localized basis.  California  is racing   to get  5 or  6 peakers  by this 
summer yet there may not be enough gas
this summer to fill their  needs.  Plans  to add  capacity inside  the  
state   to receive  gas at the border
are lagging  the plans of   interstates  to  add capacity.  

Summer peak use may  be just  as difficult to meet in the US  as winter    
peaks  have been.  As new merchant plants come online on a  regional  basis   
differentials will change  a lot.   But most pressure on prices medium term 
will be
downward, and the  items to watch   is  where/when the  new supplies  show up 
and  where the
new niche interconnects   get  built.   In California  the  Gov. does not 
want  to  let power prices  go above current price  caps  and  this  will be  
hard for him to do  and  still give price  signals  that  will  take off 
demand
at the  peak of the market.  Average electricity demand  growth annually  in 
California  has  been about  3 percent per
year  since   1998 but   less  than 1 percent of new capacity  has been  
added.  In concluding remarks, RDI's  John Egan
noted  due to the expected  crush of  changes, market vigilence   will be 
critical  for the  successful  participants in the gas and power markets  
over the next  few years.