Subject: Meeting in Wyoming
From: [email-masked]
To: [email-masked]
Cc: [email-masked]
Date: Thu, 31 May 2001 10:39:00 -0700 (PDT)

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.