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Richard--Joe has some ideas about this and will get back with you (and submit
the RCR). "Tabors, Richard" <tabors@tca-us.com< on 07/18/2000 06:05:36 PM To: Christi L Nicolay <Christi.L.Nicolay@enron.com<, James D Steffes <James.D.Steffes@enron.com< cc: "Tabors, Richard" <tabors@tca-us.com<, Joe Hartsoe <Joe.Hartsoe@enron.com<, Richard Shapiro <Richard.Shapiro@enron.com<, Steven J Kean <Steven.J.Kean@enron.com<, Rob Bradley <Rob.Bradley@enron.com< Subject: RE: Dan Larcamp request Christi, Jim, et al This last exchange has been very helpful. The question that we need some guidance on is how detailed he wants these answers and what he will do with the results. There are at least two levels that we could look at effectively. 1. Fairly quickly, a repeat of the analysis done in the summer of '98 when we looked at the price spikes in the midwest. It would need to focus on San Diego since that seems to be where the price problem is today (along with the midwest) and also get a glimmer on (rumor picked up here) the impact of CA price spikes on Oregon consumers. The conclusion from '98 was that price spikes are necessary to send investment price signals for both generation additions and for DSM investments (load response). Presumably this would carry forward to a 2000 study. 2. A more careful look at the same areas described above but more focused on how the wholesale prices find their way to end use consumers. WE covered this only in a cursory fashion in '98. Here we would need to do two things. The first is make certain that Dan and the FERC senior folks understand the basics that the price spikes in the midwest and in the other bilateral markets only affect the incremental transactions (the lesson of '98)not all kWh. This is different from price spikes in the "pool markets" where they set the price for all kWh. The second point is to see that there is an understanding of the role of a forward market and a hedge, i.e. that you could "look on EOL" and buy forward a 7x24 for the summer, say, and pay a market price to protect you against the volatility on an hourly basis by absorbing it in a 3 month contract. The "price signal for investment" conclusion would carry forward as above. What do you think the level of interest / need is and how quickly does he need some or all of the answers? This is a good time for TCA to tackle this. We have (or had) a quiet moment for both Fagan and Rao who are the two experts on data development and analysis from published sources. Christi, let's talk in the morning so I can scope an RCR. Thank you. Richard -----Original Message----- From: Christi L Nicolay [mailto:Christi.L.Nicolay@enron.com] Sent: Tuesday, July 18, 2000 5:17 PM To: James D Steffes Cc: tabors@tca-us.com; Joe Hartsoe; Richard Shapiro; Steven J Kean; Rob Bradley Subject: Re: Dan Larcamp request Thanks, Jim--Dan Larcamp seemed to genuinely want to learn what the problems are and to educate his staff. In that regard, we have offered to have some of his staff down to use some of Enron's tools. He was specifically asking for the data below to counter the bent at FERC for price caps. I didn't get a feeling that he would use the data to say that everything is fine. In fact, we took him through some parking examples and he asked that we hold a "seminar" type activity for some of his senior staffers. He is in the process of bringing on some staffers that can act agressively on hotline issues, etc. He was very familiar with the other problems on the grid. He also asked Kevin why Enron doesn't want LMP everywhere because with our staffing we can run over everyone else. Kevin told him that then there is no market liquidity and we can't trade with ourselves. As it is now, there are less than 10 big players due to the transmission risk. We explained in detail what happens in the "Into" Markets and why it is so difficult to deal with transmission/physical risk. Kevin said that even the big bank players, like Morgan Stanley, usually flip the product before it goes to liquidation so they do not have to take transmission risk. Dan L., having come from gas, understood the liquidity issues and had a good discussion with Kevin. (He sat down in Kevin's chair and looked at pricing on EOL.) Overall, it was a very positive meeting. Kevin was impressed that Dan L. really understood the issues and acted like he wanted to do something, but needed help in educating his people. James D Steffes@EES 07/18/2000 04:00 PM To: Christi L Nicolay/HOU/ECT@ECT cc: tabors@tca-us.com@ECT, Joe Hartsoe/Corp/Enron@Enron@ECT, Richard Shapiro/HOU/EES@EES, Steven J Kean/HOU/EES@EES, Rob Bradley/Corp/Enron@ENRON Subject: Re: Dan Larcamp request (Document link: Christi L Nicolay) Christi, etal -- I don't disagree with this analysis, but the drive for competitive generation is not simply related to the short term benefits (one year total energy bill versus next year total energy bill). Competitive generation is also about risk transfer - regulated monopolies assign all new plant risk to customers, merchant generation assigns all new plant risk to shareholders. In addition, I hope that Larcamp won't take our data / analysis and try to argue that "everything is fine". Clearly there are many undone / misdone public policy problems (e.g., native load exception, hourly transmission, etc.) left in the wholesale energy markets. Jim To: tabors@tca-us.com cc: Joe Hartsoe/Corp/Enron@Enron, James D Steffes/HOU/EES@EES, Richard Shapiro/HOU/EES@EES Subject: Dan Larcamp request Richard T. -- Dan Larcamp of FERC was here today and asked for a comprehensive, real price study using data from last summer or the last two summers showing how much on a $kw basis that retail customers were affected by the price spikes (including how much they saved as a result of hopefully lower prices for the remainder of the year.) He needs this to fight price caps. How much would something like that cost (probably using some of the data you gathered last year.)? How long would it take to create? Thanks for your help.
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