Message-ID: <11762789.1075848138676.JavaMail.evans@thyme> Date: Wed, 14 Feb 2001 09:58:00 -0800 (PST) From: lipsen@cisco.com To: jeff.dasovich@enron.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: Laura Ipsen X-To: Jeff.Dasovich@enron.com X-cc: skean@enron.com, Karen.Denne@enron.com X-bcc: X-Folder: \Steven_Kean_June2001_4\Notes Folders\Discussion threads X-Origin: KEAN-S X-FileName: skean.nsf Jeff, Thanks for this analysis. I think we would all agree that the solution to put power 100% in the hand of the state is an extremely frightening proposition. Unfortunately, it falls in-line with what Gov. Davis likes to do, which is to control all of the process himself. I know John will not be able to digest all of this, but will brief him over the phone on the excellent arguments you make here against support for AB1X. I will give you all feedback from the meetings tomorrow. Thanks for all your help. Laura At 10:02 AM 2/14/2001 -0600, Jeff.Dasovich@enron.com wrote: >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 > > >(See attached file: Manifesto-final version.doc)(See attached file: >McFadden Editorial in WSJ.doc)(See attached file: Demand buy-down >proposal.doc) > >