fyi

Please send to the distribution list
---------------------- Forwarded by Steven J Kean/NA/Enron on 08/28/2000
07:36 AM ---------------------------
From: Cindy Derecskey on 08/25/2000 04:01 PM
To: Steven J Kean/NA/Enron@Enron, James D Steffes/HOU/EES@EES, Richard
Shapiro/HOU/EES@EES
cc:

Subject: fyi

----- Forwarded by Cindy Derecskey/Corp/Enron on 08/25/2000 04:00 PM -----

"Martin, Kim" <martinki@fleishman.com< on 08/25/2000 03:51:17 PM
To: "'mark.palmer@enron.com'" <mark.palmer@enron.com<
cc:

Subject: fyi

Didn't know if you saw this column in today's LA Times, but he makes some
good arguments...

< JAMES FLANIGAN: Simple Steps May Ease Self-Inflicted
< Electricity Woes
< Los Angeles Times -- August 25, 2000 [Return to Headlines]
<
<
< Publication Date: Friday August 25, 2000
< Page C-1
< Los Angeles Times (Home Edition)
< Copyright 2000 / The Times Mirror Company
< By JAMES FLANIGAN
<
< Let's be clear, the fact that the state botched the job of
< deregulation to begin with is one reason California's electricity market
< is such a mess.
<
< But failure to build a single new power plant in the state
< even as California's economy expanded its use of electricity is the basic
< cause of today's shortages and soaring prices in San Diego, Orange County
< and other areas.
<
< Still, some simple steps can be taken by regulators,
< legislators and Gov. Gray Davis to provide immediate relief.
<
< The state's major utilities should be free to buy power
< wherever they can get it. They should not have to buy exclusively from the
< Power Exchange, the Pasadena-based power pool that was set up by the 1998
< deregulation to achieve auction-based prices for roughly 80% of the
< state's electricity.
<
< Approval should be expedited for adding smaller generating
< plants that supply power at times of peak demand. That could alleviate a
< tight supply-demand situation over the next year or two while larger
< plants are built.
<
< Long term, the state needs to speed up the approval process
< for building new electricity plants. The state also should force utilities
< to invest in the still-regulated system of power transmission lines, which
< now has weaknesses in the San Diego and San Francisco areas.
<
< Perhaps the most glaring fact about California's electricity
< problem is how few companies have stepped up to supply power to this
< enormous market, the nation's biggest. Only 15 or so suppliers, including
< federal agencies, the state's own utilities, municipal companies and
< private generating firms, supply power to California's system.
<
< By contrast, Pennsylvania, which has an electricity market
< less than 12% the size of California's, has 130 separate suppliers of
< electricity today, reports John Quain, chairman of that state's Public
< Utility Commission.
<
< It's no coincidence that Pennsylvania has seen monthly
< electric bills drop 3% on average since deregulation. "It's worked out
< terrifically," Quain says.
<
< What did California do wrong? It allowed the state's major
< utilities--Pacific Gas & Electric, Southern California Edison and San
< Diego Gas & Electric--to recover 100% of their unrecovered or "stranded"
< costs for nuclear and hydroelectric plants and for past power purchase
< schemes mandated by the California legislature to encourage alternative
< sources of energy.
<
< Then California's legislators told the utilities to sell
< their conventional power plants to private generating companies, all of
< which would sell their power to a central Power Exchange.
<
< The California scheme was flawed, at once over-regulated and
< yet commercially clueless in not foreseeing trouble from a single power
< pool fed by only a handful of suppliers.
<
< How did Pennsylvania do it? It allowed the state's utilities
< to recover no more than 67% of their stranded costs for nuclear
< plants--reasoning that company shareholders should accept some of the risk
< of their investments. And rather than set up a central power exchange, the
< state allowed its utilities and newcomers to the state's electric system
< to compete for business.
<
< Competition, after all, is what deregulation is supposed to
< encourage. And competition is not happening in California.
<
< It should be noted that the summer is relatively cool in the
< East this year and extraordinarily hot throughout the West. All the
< Western states are suffering electricity problems. That's another reason
< for California's trouble.
<
< Normally, 28% of California's electricity comes from U.S.
< and Canadian government systems and from utilities in Oregon and
< Washington, Nevada and Arizona. But this year, because of lower
< hydroelectric supplies and higher demand from booming economies in those
< other states, power for California is in shorter supply and more expensive
< when the state can get it. Now there are accusations that some suppliers
< to California have taken advantage of their market leverage to extract
< premium prices for power.
<
< There's nothing illegal in angling for a better price or in
< using futures markets and other trading techniques, as some generators may
< have done. If any stepped over the line to illegal collusion, federal and
< other investigations will determine the facts.
<
< But who gave the generators the market leverage to exploit
< us? The California regulators, legislators and utilities did. Told to sell
< their generating plants in 1998, the utilities sold dozens of plants in
< package deals of two and three to single buyers. They received premium
< prices from buyers such as AES Corp., Duke Energy, Southern Co. Reliant
< Energy, Dynegy and NRG. The premiums were paid for the market leverage
< that multiple plants afforded the buyers.
<
< Nobody in the utilities reckoned that they were handing
< market leverage to potential commercial adversaries. Nobody in the
< Legislature or the regulatory staffs reckoned that the central Power
< Exchange could be held up by market leverage.
<
< As outsiders often say about Californians: "Maybe it's the
< sunshine makes them slow."
<
< (END)
<
< 05:23 EDT August 25, 2000
< Copyright , 2000 Times Mirror Company
<
<
<
<