Message-ID: <23642767.1075848232373.JavaMail.evans@thyme> Date: Thu, 31 May 2001 10:39:00 -0700 (PDT) From: paul.kaufman@enron.com To: steven.kean@enron.com Subject: Meeting in Wyoming Cc: richard.shapiro@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: richard.shapiro@enron.com X-From: Paul Kaufman X-To: Steven J Kean X-cc: Richard Shapiro X-bcc: X-Folder: \Steven_Kean_June2001_5\Notes Folders\Notes inbox X-Origin: KEAN-S X-FileName: skean.nsf Re: the speech. (1) Both the Governor and Steve Reynolds thanked us for the speech and stated that it was exactly what they were looking for when they invited us to speak. The Governor wanted the Commission to understand what was going on in energy markets outside of the Wyoming borders. (2) I received a strong reaction from PacifiCorp's reaction to the notion that the electric utility industry was moving towards lower interaction costs (at the retail level). Another representative for one of the coal concerns made the same comment. These comments took us towards a discussion of what went wrong in California and retail restructuring of electricity. I partly agreed with PacifiCorp--i.e., I agreed that we were in a state of transition in the wholesale and retail markets. I also pointed out that: (1) we couldn't look at California and reach any conclusion other than they messed up; (2) we didn't have an entirely free market in electricity in the West--i.e., it's a hybrid of regulation, etc.; and (3) that the model discussed in my presentation applied to more than just electricity (a point that the Gov. also made). I said that it applies to wholesale electric markets in some areas, coal markets, gas markets, and that the model applies in wholesale markets even if the retail markets remain fully regulated. I pushed hard to take the discussion away from retail wheeling, restructuring etc., because the focus in Wyoming is and will be the commodity and how to maximize the value of that commodity for Wyoming. The Governor on a number of occasions tried to steer the discussion in this direction (i.e., away from retail). (3) Nancy Vanderberg (El Paso--a former Enron employee) sends her regards. She asked a question about the impact of the virtual integration on Wyoming. I told her that it was affecting Wyoming producers and consumers. (4) The CEO from Lower Valley Electric asked how Wyoming can benefit from competition in commodity and noted how WalMart uses predatory pricing to kill off smaller local competitors. I responded with the usual--make sure no barriers to entry, when the price gets high enough competitors will take on WalMart, etc. (5) Another member of the Commission asked what could be done immediately. In response I plugged RTO West and urging FERC to move up the timeline on RTOs, ensuring that all customers are treated the same, etc. The Gov. gave a number of strong nods to the suggestion that we expedite RTO West, etc. (6) The Gov. mentioned wind resources several times in the littany of energy resources available to producers in Wyoming. He also pointed out deficiencies in Wyoming-East connections on both gas and electric as well as deficiencies in Wyoming-Calfornia pipeline constraints. A few more notes on the meeting yesterday in Cheyenne (FYI) (7) The Governor and the lead staff person on the Energy Commission (Steve Reynolds) are both very interested in pursuing discussions with Enron. I affirmed your interest in meeting with the Governor and indicated we would be contacting them to arrange a date that was convenient. (8) These guys are serious and dedicated. The Commission was given a $1 million budget and authority to take legislative and regulatory positions on behalf of the state. During the meeting the Commission approved a series of additional meetings, working groups and advisory committees. Sue Landwehr and I will check back with Steve over the next few days to get a list of the meetings, working groups, etc. (9) My conversations with Steve Reynolds clearly indicates that the Governor and the Governor's staff are familiar with how commodity markets work--particularly ag products. They understand the concept of basis and also understand that energy commodity markets work best when there is adequate transmission capacity, gas pipeline capacity and rail capacity. They also understand that their are some contraints on the transmission system (a complete constraint moving east, off-peak constraints moving north, south, and west), limited take away capacity on the one major pipeline serving the state (Kern--perhaps due to downstream constraints), and some problems with the cost of rail transportation (if not a constraint). While they have a working understanding of all these things, they haven't been able to put it all together in a cohesive way. (10) Wyoming wants to produce more energy for the west (and the rest of the country), but wants to avoid the boom and bust cycle of a resource dependent state. (For example, the state moved from a $250 million deficit in FY 1999 to an approximately $750 million surplus in FY 2000). They also want to diversify the state's economy and bring economic development. For example, a major focus of the state's Business Council has been to recruit "server farms"--because of their load and high load factors. They talked about co-locating server farms and generation along the southern tier of the state (which has a large amount of fiber optic bandwidth available). (11) The Wyoming PSC held a meeting yesterday afternoon on hedging. In his comments to the Commission, PSC Chairman Steven Ellenbecher said that the state should clarify the utility's responsibility to either: (1) build their own power plants; or (2) acquire a portfolio of resources and hedge. Steve talked alot about the volatility in gas markets and electric markets and how the utilities that owned their own generation faired the best in 2000/2001--because the generation acted as a hedge against market prices. Steve was also supportive of gas restructuring at the retail level--but silent on electric restructuring.