Message-ID: <32514852.1075848261631.JavaMail.evans@thyme>
Date: Sun, 21 Jan 2001 07:19:00 -0800 (PST)
From: steven.kean@enron.com
To: eric.benson@enron.com
Subject: Re: High Speed Regulation in California - CERA Alert
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Need a hard copy ... I don't have a password for cera



=09Eric Benson
=0901/20/2001 10:02 AM
=09=09=20
=09=09 To: Steven J Kean/NA/Enron@Enron, Richard Shapiro/NA/Enron@Enron, Ja=
mes D=20
Steffes/NA/Enron@Enron
=09=09 cc:=20
=09=09 Subject: High Speed Regulation in California - CERA Alert

Steve, Rick and Jim -=20

Below is an article from CERA that summarizes the current situation in=20
California.

Eric

+++++++++++++++++++++++++++++++++++++++

----- Forwarded by Eric Benson/NA/Enron on 01/20/2001 09:59 AM -----

=09webmaster@cera.com
=0901/19/2001 05:16 PM
=09=09=20
=09=09 To: messages@cera.com
=09=09 cc:=20
=09=09 Subject: High Speed Regulation in California - CERA Alert



Title: High Speed Regulation in California
URL: http://www20.cera.com/eprofile?u=3D35&m=3D2208


A Feverish Pitch
The pace of regulatory and political events in California has taken on the
feverish pitch of the energy market crisis itself. Important decisions
regarding a wide range of market structure issues are being made quickly at=
=20
the
California Public Utilities Commission (CPUC) and the state Legislature,
increasing the level of uncertainty most market participants already percei=
ve
in the quickly evolving California market. Sudden changes are being made to=
=20
the
market structure, changes that used to require years in California=01,s com=
plex
regulatory and legislative proceedings.

As rolling blackouts have rippled through urban centers of Northern Califor=
nia
on January 17 and 18, including in portions of downtown San Francisco,
Sacramento, and the Silicon Valley, state officials are scrambling to set u=
p
the appropriate credit mechanisms to ensure the continued delivery of scarc=
e
western energy supplies to California=01,s two largest utilities. Even at p=
rices
near $800 per megawatt-hour (MWh), the California Department of Water=20
Resources
(CDWR), attempting to buy power on behalf of Pacific Gas and Electric (PG&E=
)
and Southern California Edison (SCE), has been unable to secure enough to k=
eep
the lights on. In the mean time, legal actions by some energy suppliers
threaten to tip the utilities into bankruptcy=01*and are being held at bay =
only=20
by
direct intervention of California=01,s governor.

Below is a summary of the various state actions being pursued concurrently:

*California governor. California Governor Gray Davis continues to attempt t=
o
act on behalf of PG&E and SCE to secure long-term contracts for supply from
merchant generation owners and marketers in California. On the same front, =
the
governor has been negotiating with generators in an attempt to keep them fr=
om
seeking compensation through the courts for energy delivered to the utiliti=
es.
Court-ordered reimbursement could prompt bankruptcy.

*Legislature. Bills have been approved to authorize continued power purchas=
es
on behalf of PG&E and SCE by the CDWR, to restructure the independent syste=
m
operator=01,s (ISO) governing board to consist of five members appointed by=
 the
governor, to restrict the ability of the ISO to enter into a broader=20
interstate
regional transmission organization (RTO) without the explicit approval of
California=01,s Electricity Oversight Board, and to prohibit the divestitur=
e of
the investor-owned utilities=01, remaining generating assets until 2006. Th=
e
vehicle for pursuing authorization of state bond financing for acquisition =
of
transmission assets and construction of new generation facilities is still
being developed.

*California Public Utilities Commission. On January 18 the CPUC adopted a
decision prohibiting the sale of SCE=01,s Mohave Generating Station to AES.=
 This
voids a sale that was announced but not closed. The CPUC also delayed=20
decisions
regarding SCE=01,s application to end its rate freeze and the prudency crit=
eria
for utilities entering into long-term supply contracts.

Some of these issues will continue to evolve as they progress along their
respective and sometimes intersecting paths, and some will need to pass=20
through
multiple review bodies. This rapid and erratic evolution has not helped to
decrease either the financial risk associated with supplying energy to
California=01,s two largest utilities, or the level of uncertainty in devel=
oping
new generation to supply California in the future.

The ISO anticipates that it will call stage 3 emergencies (reserves less th=
an
1.5 percent) for January 19 and will most likely continue to curtail
interruptible customers through the weekend. Western energy supplies are be=
ing
strained by recent heavy usage of hydroelectric facilities where water=20
supplies
are already as much as 25 percent below average, owing to low precipitation=
=20
and
continued plant outages near 9,000 MW in California. The gravity of the
financial condition of California=01,s two largest utilities is exemplified=
 by=20
the
need for other, more creditworthy intermediaries, including California
municipal utilities, state agencies, and some unregulated energy suppliers,=
 to
act as temporary  guarantors for the acquisition of energy on behalf of PG&=
E
and SCE.

**end**

Follow above URL for full report.

*********************************************************
Come Shoot the Rapids with us at CERAWeek2001, "Shooting the Rapids:
Strategies and Risks for the Energy Future" in Houston, February 12-16, 200=
1!
For more information and to register, please visit
http://www20.cera.com/ceraweek/
*********************************************************



E-mail Category: Alert
CERA Knowledge Area(s): Western Energy,

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