I have added my comments in capital letters below.  This is in addition to 
the email agreeing with what Frank Vickers sent to you to which I responded.





	Jeff Dasovich@ENRON
	Sent by: Jeff Dasovich@ENRON
	12/29/2000 10:11 AM
		 
		 To: Alan Comnes/PDX/ECT@ECT, Beverly Aden/HOU/EES@EES, Brenda 
Barreda/HOU/EES@EES, Carol Moffett/HOU/EES@EES, Cathy Corbin/HOU/EES@EES, 
Chris H Foster/HOU/ECT@ECT, Christina Liscano/HOU/EES@EES, Dan 
Leff/HOU/EES@EES, Debora Whitehead/HOU/EES@EES, Dennis Benevides/HOU/EES@EES, 
Don Black/HOU/EES@EES, Dorothy Youngblood/HOU/ECT@ECT, Edward 
Sacks/Corp/Enron@ENRON, Eric Melvin/HOU/EES@EES, Erika Dupre/HOU/EES@EES, 
Evan Hughes/HOU/EES@EES, Fran Deltoro/HOU/EES@EES, Frank W 
Vickers/HOU/ECT@ECT, Gayle W Muench/HOU/EES@EES, Ginger 
Dernehl/NA/Enron@ENRON, Gordon Savage/HOU/EES@EES, Harold G 
Buchanan/HOU/EES@EES, Harry Kingerski/NA/Enron@ENRON, Iris Waser/HOU/EES@EES, 
James D Steffes/NA/Enron@ENRON, James W Lewis/HOU/EES@EES, Jeremy 
Blachman/HOU/EES@EES, Jess Hewitt/HOU/EES@EES, Joe Hartsoe/Corp/Enron@ENRON, 
Karen Denne/Corp/Enron@ENRON, Kathy Bass/HOU/EES@EES, Kathy 
Dodgen/HOU/EES@EES, Ken Gustafson/HOU/EES@EES, Kevin Hughes/HOU/EES@EES, 
Leasa Lopez/HOU/EES@EES, Leticia Botello/HOU/EES@EES, Mark S 
Muller/HOU/EES@EES, Marsha Suggs/HOU/EES@EES, Marty Sunde/HOU/EES@EES, 
Meredith M Eggleston/HOU/EES@EES, mpalmer@enron.com, Neil 
Bresnan/HOU/EES@EES, Neil Hong/HOU/EES@EES, Paul Kaufman/PDX/ECT@ECT, Paula 
Warren/HOU/EES@EES, Richard Shapiro/NA/Enron@ENRON, Rita 
Hennessy/NA/Enron@ENRON, Robert Badeer/HOU/ECT@ECT, Roger Yang/SFO/EES@EES, 
Rosalinda Tijerina/HOU/EES@EES, Sandra McCubbin/NA/Enron@ENRON, Sarah 
Novosel/Corp/Enron@ENRON, Scott Gahn/HOU/EES@EES, Scott Stoness/HOU/EES@EES, 
Sharon Dick/HOU/EES@EES, skean@enron.com, Susan J Mara/NA/Enron@ENRON, Tanya 
Leslie/HOU/EES@EES, Tasha Lair/HOU/EES@EES, Ted Murphy/HOU/ECT@ECT, Terri 
Greenlee/NA/Enron@ENRON, Tim Belden/HOU/ECT@ECT, Tony Spruiell/HOU/EES@EES, 
Vicki Sharp/HOU/EES@EES, Vladimir Gorny/HOU/ECT@ECT, Wanda Curry/HOU/EES@EES, 
William S Bradford/HOU/ECT@ECT, Jeff Messina/HOU/EES@EES, Douglas 
Huth/HOU/EES@EES, Richard Leibert/HOU/EES@EES, Scott Gahn/HOU/EES@EES, 
Michael Mann/HOU/EES@EES, Angela Schwarz/HOU/EES@EES, Craig H 
Sutter/HOU/EES@EES, Richard L Zdunkewicz/HOU/EES@EES, Bill Votaw/HOU/EES@EES, 
James Wright/Western Region/The Bentley Company@Exchange, Christopher F 
Calger/PDX/ECT@ECT, Frank W Vickers/HOU/ECT@ECT, Chris H Foster/HOU/ECT@ECT, 
Tim Belden/HOU/ECT@ECT, Robert Badeer/HOU/ECT@ECT, Michael 
Etringer/HOU/ECT@ECT, Michelle D Cisneros/HOU/ECT@ECT, Tim 
Belden/HOU/ECT@ECT, Phillip K Allen/HOU/ECT@ECT, David Parquet/SF/ECT@ECT, 
Marty Sunde/HOU/EES@EES, William S Bradford/HOU/ECT@ECT, Scott 
Stoness/HOU/EES@EES, Dennis Benevides/HOU/EES@EES, Robert Badeer/HOU/ECT@ECT, 
Jeff Dasovich/NA/Enron@Enron, Sandra McCubbin/NA/Enron@Enron, Susan J 
Mara/NA/Enron@ENRON, Richard Shapiro/NA/Enron@Enron, James D 
Steffes/NA/Enron@Enron, Paul Kaufman/PDX/ECT@ECT, Mary Hain/HOU/ECT@ECT, Joe 
Hartsoe/Corp/Enron@ENRON, Mark Palmer/Corp/Enron@ENRON, Karen 
Denne/Corp/Enron@ENRON, Paul Smith/HOU/EES@EES, Mike D Smith/HOU/EES@EES, 
Mark Schroeder/LON/ECT@ECT
		 cc: 
		 Subject: Meeting with Governor Davis, need for additional 
comments/suggestions

All:

Please see attached materials from Steve Kean.  Ken Lay and Steve Kean met 
yesterday with the Governor of California and his policy director to discuss 
solutions to California's energy problems. The meeting was very 
constructive.  Ken Lay and Steve offered some of Enron's proposed solutions 
and the Governor discussed the options he's considering.  We've been asked to 
provide--by Tuesday--feedback on his proposals.  The turn-around time is 
tight, particularly in light of the holiday.  We'll need your feedback by COB 
Monday.  If at all possible, if folks can group their feedback, comments and 
suggestions and foward them along to me, that would be very helpful.  If 
there is anyone else that you think ought to receive this information, please 
forward along.  Thanks very much for you help.

Best,
Jeff
----- Forwarded by Jeff Dasovich/NA/Enron on 12/29/2000 11:33 AM -----

	Steven J Kean
	12/28/2000 09:19 PM
		 
		 To: Tim Belden/HOU/ECT@ECT, Phillip K Allen/HOU/ECT@ECT, David 
Parquet/SF/ECT@ECT, Marty Sunde/HOU/EES@EES, William S Bradford/HOU/ECT@ECT, 
Scott Stoness/HOU/EES@EES, Dennis Benevides/HOU/EES@EES, Robert 
Badeer/HOU/ECT@ECT, Jeff Dasovich/NA/Enron@Enron, Sandra 
McCubbin/NA/Enron@Enron, Susan J Mara/NA/Enron@ENRON, Richard 
Shapiro/NA/Enron@Enron, James D Steffes/NA/Enron@Enron, Paul 
Kaufman/PDX/ECT@ECT, Mary Hain/HOU/ECT@ECT, Joe Hartsoe/Corp/Enron@ENRON, 
Mark Palmer/Corp/Enron@ENRON, Karen Denne/Corp/Enron@ENRON
		 cc: 
		 Subject: Meeting with Governor Davis, need for additional 
comments/suggestions

We met with Gov Davis on Thursday evening in LA.  In attendance were Ken Lay, 
the Governor, the Governor's staff director (Kari Dohn) and myself.  The gov. 
spent over an hour and a half with us covering our suggestions and his 
ideas.  He would like some additional thoughts from us by Tuesday of next 
week as he prepares his state of the state address for the following Monday.  
Attached to the end of this memo is a list of solutions we proposed (based on 
my discussions with several of you) as well as some background materials Jeff 
Dasovich and I prepared.  Below are my notes from the meeting regarding our 
proposals, the governor's ideas, as well as my overview of the situation 
based on the governor's comments:

Overview:   We made great progress in both ensuring that he understands that 
we are different from the generators and in opening a channel for ongoing 
communication with his administration. The gov does not want the utilities to 
go bankrupt and seems predisposed to both rate relief (more modest than what 
the utilities are looking for) and credit guarantees.  His staff has more 
work to do on the latter, but he was clearly intrigued with the idea.  He 
talked mainly in terms of raising rates but not uncapping them at the retail 
level.  He also wants to use what generation he has control over for the 
benefit of California consumers, including utility-owned generation (which he 
would dedicate to consumers on a cost-plus basis) and excess muni power 
(which he estimates at 3000MW).  He foresees a mix of market oriented 
solutions as well as interventionist solutions which will allow him to fix 
the problem by '02 and provide some political cover.
Our proposals:  I have attached the outline we put in front of him (it also 
included the forward price information several of you provided).  He seemed 
interested in 1) the buy down of significant demand, 2) the state setting a 
goal of x000 MW of new generation by a date certain, 3) getting the utilities 
to gradually buy more power forward and 4) setting up a group of rate 
analysts and other "nonadvocates" to develop solutions to a number of issues 
including designing the portfolio and forward purchase terms for utilities.  
He was also quite interested in examining the incentives surrounding LDC gas 
purchases.   As already mentioned, he was also favorably disposed to finding 
some state sponsored credit support for the utilities.
His ideas:  The gov read from a list of ideas some of which were obviously 
under serious consideration and some of which were mere "brainstorming".  
Some of these ideas would require legislative action.
State may build (or make build/transfer arrangements) a "couple" of 
generation plants.  The gov feels strongly that he has to show consumers that 
they are getting something in return for bearing some rate increases.  This 
was a frequently recurring theme.

WE WOULD BE HAPPY TO DO THIS.  MUST DEAL WITH CREDIT ISSUES IN OUR LIFE 
TIME.  NOTE THAT WE ARE TALKING TO SCE ABOUT A TOLLING AGT FROM LV COGEN.  
CREDIT ISSUES ARE OPEN.

Utilities would sell the output from generation they still own on a cost-plus 
basis to consumers.
Municipal utilties would be required to sell their excess generation in 
California.
State universities (including UC/CSU and the community colleges) would more 
widely deploy distributed generation.
Expand in-state gas production.
Take state lands gas royalties in kind.
negotiate directly with tribes and state governments in the west for 
addtional gas supplies.
Empower an existing state agency to approve/coordinate power plant 
maintenance schedules to avoid having too much generation out of service at 
any one time.

THIS IS DONE NOW BY THE ISO

Condition emissions offsets on commitments to sell power longer term in state.

DO NOT THINK THIS WILL GO TOO FAR AS EMISSIONS OFFSETS ARE A FEDERAL ISSUE.  
HOWEVER, THERE ARE A NUMBER OF THINGS THAT THE STATE COULD DO TO PROMOTE ERCS 
(SEE PREVIOUS ISSUES DISCUSSED WITH STATE OFFICIALS, INCLUDING STEVENS, ET 
AL.  SORRY I DO NOT HAVE THE DOC ON MY VACATION.  ASK SAM FOR A COPY OF HIS 
SPECIFIC SUGGESTIONS.)  THIS PROMOTION COULD BE CONDITIONED ON SELLING IN 
STATE.

Either eliminate the ISO or sharply curtail its function -- he wants to hear 
more about how Nordpool works(Jeff- someone in Schroeder's group should be 
able to help out here).

NICE SCAPEGOAT.

Wants to condition new generation on a commitment to sell in state.  We made 
some headway with the idea that he could instead require utilities to buy 
some portion of their forward requirements from new in-state generation 
thereby accomplishing the same thing without using a command and control 
approach with generators.

REQUIRING IN STATE SALE IS PROBALY RESTRAINT OF TRADE.  HOWEVER, GETTING THE 
SAME OUTCOME THROUGH INCENTINVES, EG, LONG TERM CONTRACTS, IS BETTER.  
(CONFIDENTIALLY, I KNOW THAT AES IS NEGOTIATING A PPA WITH SCE FOR ITS MOJAVE 
PLANT, I PRESUME AS A CONDITION TO CONTINUING TO GET TO BUY IT.  THAT IS 
FINE.)

Securitize uncollected power purchase costs.

SEE MY COMMENTS RE FRANK VICKERS EMAIL.  TO THE POINT, CANNOT SECURITIZE IF 
HAVE A PHONY SRAC, IE., ONE BASED ON WACOG.  IF PUT IT BACK TO BORDER INDEX 
GAS BASED SRAC, CAN SECURITIZE EASILY.

To dos: (Jeff, again I'd like to prevail on you to assemble the group's 
thoughts and get them to Kari)
He wants to see 5 year fixed power prices for peak/ off-peak and baseload -- 
not just the 5 one year strips.
He wants comments on his proposals by Tuesday.
He would like thoughts on how to pitch what consumers are getting out of the 
deal.

I DO NOT KNOW AB OUT YOU, BUT I THINK IT IS A COP OUT THAT "THE UTILITIES ARE 
THE BLAME FOR THIS AND SHOULD TAKE ALL THE BRUNT FOR THE HIGH PRICES".  
NOTWITHSTANDING FLORIOS COMMENTS THAT "HE WAS ALWAYS AGAINST DEREGULATION", I 
THINK THAT AT LEAST SOME OF THE PROBLEM HAS NOTHING TO DO WITH DEREGULATION:  
VERY HIGH LOAD GROWTH, NO GENERATION BUILT FOR YEARS (THAT WAS PROBABLY THE 
PROBLEM OF THE REGULATED REGIME), LOW HYDRO IN NW, HIGH GROWTH IN ADJACENT 
STATES, ETC.  I THINK IF GOV WAS HONEST WITH CONSUMERS (NO RATE INCREASE FOR 
5 YEARS - IT IS NOW TIME...) THAT CONSUMERS WOULD BE OK WITH INCREASE.  MY 
BIGGEST SUGGESTION IS TO THAT WHATEVER IS DONE IS DONE IN CONTEXT OF AN 
OVERALL PLAN THAT ACCOMODATES UTILITY CREDIT, RATE INCREASES, GENERATION, 
ETC., ETC,  EACH PARTY DOES NOT HAVE TO AGREE WITH EVERYTHING, BUT IF 
EVERYONE CAN SEE THE WHOLE PLAN, THEN I BELIEVE THINGS WILL WORK.

He wants to assemble a group of energy gurus to help sort through some of the 
forward contracting issues.
Thanks to everyone for their help.  We made some progress today.