Observations on the Hearings this Week

We're in the process of developing a strategy to take us through the next few
months. But while the (otherwise perishable) thoughts are still fresh in my
mind from the hearings on Monday and Tuesday, I wanted to throw out some
observations for discussion in the days/weeks ahead.

OBSERVATION--The pressure to finger somebody for "price gouging" is
increasing.

The administration is hell bent on finding a "fall guy." The price spikes
pose real political risks for Davis and he and his folks need and want an
easy way out. His press release following the hearing renewed the call for
"refunds." On my panel, Loretta Lynch asked Reliant and Duke to supply her
with the details of the contracts they cut to sell their power forward to
marketers. And Carl Wood's remarks were extreme.
At the Barton hearing, a liberal democrat (Filner) and a conservative
Republican (Hunter) locked arms in calling for refunds. Bilbray joined the
"gouging" band wagon.
The utilities repeatedly called on FERC to do a "real" investigation, with
hearings, testimony, data discovery---the works.
On the positive side, the FERC commissioners lauded Wolak, his analysis, and
his remarks on the panel. Wolak said somewhat emphatically that the nature
of California's market structure makes it impossible to single out a single
participant as the culprit. He also stated that just everyone's just acting
in their own self-interest, responding to the screwed incentives embedded in
the structure.

IMPLICATION--It seems prudent for Enron to understand better its risks of
getting fingered.

In the best case, the clamoring for a "refund" subsides. In which case, the
only cost to Enron is the internal cost incurred to understand better the
risks of getting fingered.
In the medium case, investigations find that Enron (like others) "played by
the rules," but the rules stunk, and Enron profited at the expense of
California consumers.