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Enron Mail |
Steve, thanks for the helpful materials. However, if the experience in
overseas deregulating electricity markets where price increases and spikes have occurred is any precedent, we will need to have some more down-to-earth responses to a some of the potentially inflammatory issues facing the politicians: 1. When the prices spike, who reaps the windfall? Who sells that most expensive 1% of the kwh? Is it a careful planner or a lucky speculator or market manipulator? Someone is making a bunch of money off the screwed up system. Who is it, and why is that OK? 2. We do not allow people to inflate water prices to consumers in times of drought, or food prices in times of hurricanes or floods. Even gasoline price increases in periods of high demand are within 20%-30% of the base, not 2,5,10 or 100 times the average like spot electric prices. The issue isn't whether the system is broken or not or how bad partial regulation is or how much demand has increased versus supply. Thes will be seen as "ivory tower" discussions. The populist political issue is, until the problem is fixed, why should some shrewd big electric company or middleman be allowed to profit off the misfortune of consumers who did not cause the problem? Why should anyone be allowed to profiteer by selling at multiples above their generation cost? 3. The hedges, fixed price contracts and other de facto insurance against volatility that Enron or others offer could be seen as a symptom of the problem rather than the solution. Enron could be seen as at best a band aid and at worst an opportunist made possible only by a broken system - - -sort of like the guys who ran the old style protection rackets, or Colombian "security consultants" who "guard " pipelines from the threats their guerilla afiliates create, or political risk insurance that you shouldn't really need if the host country wasn't so screwed up. Don't worry about high crime in your neighborhood - - - just hire an off-duty policeman. Who needed these new electricity risk management products in the old days before deregulation? We have to be able to answer these types of questions at the level of the ordinary citizen, not merely have the correct long-term competitive market solution, or the forces of ignorance and re-regulation will gain momentum. Are we sure we shouldn't back a temporary peak hour price cap until the regulatory problems we're all familiar with are worked out, to avoid a much worse long term rollback?. - - -DLH Steven J Kean@EES 08/14/2000 05:42 PM Sent by: Maureen McVicker@EES To: Executive Committee cc: Gavin Dillingham/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Joseph P Hirl/AP/ENRON@ENRON, Jeannie Mandelker/HOU/ECT@ECT, Nicholas O'Day/AP/Enron@Enron, Mark Schroeder/LON/ECT@ECT, Richard Shapiro/HOU/EES@EES, James D Steffes/HOU/EES@EES Subject: Talking Points re "reregulation" in California As I promised this morning at the executive committee meeting, below are some talking points for your use. Overall message: the market is working, regulation is not. In California, peak demand rose by 10% over the last 4 years while new capacity grew by only 2%. But, as you would expect, the market responded by proposing 8,000MW of new generation - - more than enough to offset the peak demand growth. The regulatory process, at both the state and local level, has failed to site this new generation. The problem is regulation, not deregulation. When San Diego customers began experiencing the effects of higher prices, Enron responded with a fixed price which would have shielded San Diego customers from price volatility and provided prices below their current summer levels (Enron's price was about $55/MWH). After publication of Enron's offer, nine other companies made offers. Again, the market responded where regulation failed. San Diego has not accepted any of these offers because of regulatory/legislative restrictions on its ability to buy outside of the PX (i.e. the spot market). In markets where siting is easier, suppliers have moved to build additional generation. Enron built 3 plants in response to the 1998 price spikes. Those plants were planned, sited and built in less that 12 months - - in time for the summer of 1999. Where regulatory hurdles are lower, the market responds. The solution to current pricing and reliability issues is more competition not reregulation. Policy makers should: Open the transmission grid so that power can get from where it is to where it is needed. Expedite interconnection of new generation. Expedite siting of new facilities. Give customers a choice, so that they have better access to demand side solutions. Also attached is a more detailed discussion of California, prepared by Jeff Dasovich of our San Francisco office.
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