Message-ID: <27196759.1075846379749.JavaMail.evans@thyme> Date: Mon, 28 Aug 2000 00:36:00 -0700 (PDT) From: steven.kean@enron.com To: gavin.dillingham@enron.com Subject: fyi Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Steven J Kean X-To: Gavin Dillingham X-cc: X-bcc: X-Folder: \Steven_Kean_Dec2000_1\Notes Folders\Sent X-Origin: KEAN-S X-FileName: skean.nsf 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" on 08/25/2000 03:51:17 PM To: "'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 > > > >