Message-ID: <32101096.1075848203560.JavaMail.evans@thyme>
Date: Mon, 5 Feb 2001 09:19:00 -0800 (PST)
From: mark.schroeder@enron.com
To: john.sherriff@enron.com, michael.brown@enron.com
Subject: Spanish Govt. authorises the merger, but...
Cc: steven.kean@enron.com
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You may wish to quickly skim through the details below, of the Government's=
=20
decree (the final action on the Endesa/Iberdrola merger), modifying slightl=
y=20
what the Competition Authority did on the case.  If you wish to skip down,=
=20
you may go to the heading "Commercialisation" (the Spanish term for=20
marketing/supply function).  There you will see the outlines (details to=20
follow) of what I described in the Staff meeting today, which is the=20
limitation on the merging incumbents being able to only obtain 60% of the=
=20
business of new/renewing customers, i.e., those customers must seek service=
s=20
from other suppliers.  I am not aware of such a concession being extracted=
=20
anywhere else before, and this is all due to the efforts of Alfredo=20
Huertas.   It should bode well for businesses like Enron Direct, and toward=
=20
the development of a contracts market where others will need to trade with =
us=20
and seek our risk mangaement skills.  let me know if you need more.   mcs=
=20
---------------------- Forwarded by Mark Schroeder/LON/ECT on 05/02/2001=20
16:25 ---------------------------
  =20
=09
=09
=09From:  Alfredo Huertas                           02/02/2001 17:15
=09

To: Ignacio Soneira/MAD/ECT@ECT, Gonzalo Gomez-Navarro/MAD/ECT@ECT, Eric=20
Gonzales/LON/ECT@ECT, Mariano Gentilini/LON/ECT@ECT, Jose Luis=20
Gomez-Banovio/LON/ECT@ECT, David Gonzalez/LON/ECT@ECT, Paul Mead/LON/ECT@EC=
T,=20
Pedro Del Rio Alcalde/LON/ECT@ECT, Robert Saltiel/LON/ECT@ECT
cc: Mark Schroeder/LON/ECT@ECT, Peter Styles/LON/ECT@ECT=20

Subject: Spanish Govt. authorises the merger, but...

We do not know the particulars of the following press headlines (the decree=
=20
will be published on Monday). Comments below s/t the actual drafting of the=
=20
decree:

Generation

Market share of 42% of generation: We do not know if this is expressed (in =
MW=20
or MWh, etc...). Still unknown if this includes special regime generation; =
if=20
yes, the market share of ordinary regime generation may go down to 35% (we=
=20
insisted on 30%).

Divestiture by auction, as we proposed.

This share could not be increased until 2005, but no aparent limitation on=
=20
new built generation for the merged.

Particulars about the mix are still ambigous.

Transmission

Reduction on the participation on OMEL and REE to 10%

Distribution

Market share of 48% of distribution: As above, we do not know yet how this =
is=20
expressed, but Vicent was suggesting last Tuesday that a "meaningful"=20
criteria was going to be applied, as opposed to the "meaningless and biased=
"=20
suggested by the utilities and the CNE. We recommended 40% as compared to 6=
6%=20
proposed by the utilities.

Commercialisation

Market share of 40% of new + renew contracts on the whole Spanish territory=
.=20
On the top of this, the merged company's market share cannot go beyond 60% =
of=20
new + renewed contracts on its own distribution area. Although our proposal=
=20
of applying these same limits to existing and new contracts has not gone=20
through (there were actually legal problems involved on that), we could cla=
im=20
a great deal of "responsibility" on implementing the second boundary relati=
ve=20
to their own distribution area. (We actually had to convinced Sempra and=20
Aquila to support this initiative).

Although we do not know yet how the % is expressed (as above), it is very=
=20
important the second limitation on their own distribution territory, in ord=
er=20
to spur retail competition and tackle distcos' discriminatory behaviour on=
=20
access and metering issues. Recall that by 2003 all customers are eligible,=
=20
and this limitation will last until 2005.=20

CTCs

CTCs rights are passed to new owners, but the capital gains associated to=
=20
divestiture to offset CTCs rights of the seller. We battled for this last=
=20
piece, but not for the transferral of CTC rights to new owners. We will nee=
d=20
to analysed this more carefully in the decree itself.

No more securitisation! The 4.5% of the tariff, which was devoted to fund=
=20
CTCs has been eliminated. Therefore, we come back to the early days=20
mechanism. Implications:=20
  1) the CTC mechanism will be more transparent now, but still opaque=20
overall;=20
  2) Will the 1998 CTC write-off be re-established, that is, will CTCs=20
increase? More details on Monday

Penalties

=14 ?12,020 per day where the conditions above are not satisfied.

=20
a.