Message-ID: <19628202.1075851013854.JavaMail.evans@thyme> Date: Wed, 14 Feb 2001 02:02:00 -0800 (PST) From: jeff.dasovich@enron.com To: lipsen@cisco.com Subject: Re: California Power Crisis Cc: skean@enron.com, karen.denne@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: skean@enron.com, karen.denne@enron.com X-From: Jeff Dasovich X-To: Laura Ipsen X-cc: skean@enron.com, Karen Denne X-bcc: X-Folder: \Steven_Kean_Oct2001_2\Notes Folders\Attachments X-Origin: KEAN-S X-FileName: skean.nsf Hi Laura: I've attached three things, but first wanted to give you a bit of an update on events transpiring in Sacramento and at the Public Utilities Commission. Move to Prohibit Customer Choice As you may know, AB1X, the bill that the Legislature recently passed and the Governor signed, gives the California Department of Water Resources the authority to buy power on behalf of the utilities. Included in that bill, however, is a provision that prohibits "Direct Access," California's term for customer choice. In sum, the bill, in its current form, prohibits businesses and consumers from chosing an alternative energy service provider, like Enron. Our understanding is that the Department of Finance called for the prohibition. Their reasoning is that they need a "captive" customer base to pay for the bonds that the State will issue in order to finance DWR's power purchases. Customer choice was of course the foundation of California's restructuring law, AB 1890, and is arguably the only bright spot in an otherwise fatally flawed plan. For example, the only businesses and consumers that were protected in San Diego when rates were deregulated last year were those businesses and consumers that had signed fixed price power deals with competitive service providers. Ironically, the recently passed legislation takes choices away from consumers and diminishes their ability to manage their energy costs. Before AB 1890, consumers and businesses had one choice--the monopoly utility. With the passage of AB 1X, they again will have one choice. But this time their only choice will be to buy from a government agency DWR. A broad coalition of consumer groups has expressed its opposition to the prohibition and Senator Debra Bowen (a key player on the Senate side), and Fred Keeley (a key player on the Assembly side), have promised to "fix" the prohibition in another bill "SB27X." I'll forward in another email the language that the coalition has drafted and hopes Bowen and Keeley will carry. Unfortunately, we are now hearing rumors that the Governor intends to direct the California Public Utilities to immediately implement the provisions of AB1X prohibiting Direct Access, despite the fact that a large coalition of consumers and service providers are actively working with Bown and Keeley to amend the prohibition language. It would be extremely useful if the folks participating in the meeting on Thursday with the Governor let him know that taking choices away from businesses and customers is the wrong way to go and that he and the legislative leaders need to work with the coalition to fix it. You'll note in the language developed by the coalition that the proposal strikes a reasonable balance between the Dept of Finance's concerns about recouping DWR's costs of buying power, and the need to give consumers and businesses maximum flexible in managing their energy costs. Move to Have the State Take Over the Electric Industry in California John Burton, the Democratic leader of the Senate, insists that, "if California is going to 'bail out' the utilities, the State needs to get something in return." Burton wants the state to buy and operate PG&E's and Edison's transmission system and create a state power authority that would get in the business of (among other things) developing, financing, constructing and operating power plants and natural gas pipelines. Burton got both of these bills designed to take over the industry passd out of his committee yesterday (SB6X and SB33X). It is unclear how much support he has in the full Senate or in the Assembly, but the possibility of passage is certainly greater than zero at this juncture. Others experts are offering a better alternative. When the federal government helped Chrysler out of its financial difficulties 20 years ago, the federal government received stock warrants in return. Until recently, the Governor favored warrants, but more recently he has waivered in his statements regarding a state take over. Burton appears to have negotiating leverage with the Governor and appears to be using it. Again, it would be extremely useful for folks to let the Govenor know in the meetings on Thursday that a State take over of the industry is an extreme move and bad public policy. I will forward to you in a separate email letters that we sent to Burton expressing our opposition to his bills and the reasons for our opposition. In brief, there is no shortage of private capital ready and willing to invest in California's energy infrastructure (i.e., power plants, electric transmission lines, gas pipelines). All California needs to do is create the investment climate necessary to attract the capital. In addition, history shows that the State is extremely ill-equipped to become California's mega-utility. Here are the attachments: A demand buy-down proposal. We made this proposal to the Governor (and continue to propose it to policymakers in Sacramento, Washington D.C. and just about everywhere else). In short, the notion is that, if the market is willing to pay power producers, say, 7 cents/kwh to "produce" power, then the market ought to be willing to pay businesses and consumers 7 cents/kwh to "reduce" power consumption. This approach is critical for two reasons: first, it provides businesses and consumers the financial incentives necessary (and that California currently lacks) to conserve energy and use energy more efficiently. Second, because California delayed identifying and implementing a solution to California's energy crisis, its options for addressing the severe shortages that are likely occur this summer are very limited. Reducing demand represents one of the few options that can help to immediately reduce the gap between supply and demand. Putting financial incentives in place now to reduce demand and "free up" electrons is an investment with significant payback. A "manifesto" recently released by a group of Berkeley and Stanford economists and industry experts urging the Govenor to pursue a "market-oriented" solution to California's energy crisis. An editorial in yesterday's Wall Street Journal by Dan McFadden, a nobel prize-winning economist from Berkeley echoing the proposal advanced in the "manifesto." McFadden was one of the manifesto's signatories. Finally, we are working on "model Legislation" proposing a market-based solution that we will share with you soon and that we hope the business community--and the Valley in particular--can embrace and advocate. I realize that this is a lot of information and I apologize for the length of this note, but I wanted to try to make sure that you're up-to-date. Please don't hesitate to give me a call if you'd like to discuss further. Best, Jeff - Manifesto-final version.doc