Message-ID: <5050895.1075846392944.JavaMail.evans@thyme> Date: Fri, 18 Feb 2000 06:27:00 -0800 (PST) From: paul.dawson@enron.com To: structure.group@enron.com Subject: Market structure group Cc: steven.kean@enron.com, maureen.mcvicker@enron.com, mark.schroeder@enron.com, fiona.sayers@enron.com, philip.davies@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: steven.kean@enron.com, maureen.mcvicker@enron.com, mark.schroeder@enron.com, fiona.sayers@enron.com, philip.davies@enron.com X-From: Paul Dawson X-To: Structure Group X-cc: Steven J Kean, Maureen McVicker, Mark Schroeder, Fiona Sayers, Philip Davies X-bcc: X-Folder: \Steven_Kean_Dec2000_1\Notes Folders\Working groups X-Origin: KEAN-S X-FileName: skean.nsf My apologies for not kicking things off earlier, but the regulator here has conspired to make the last few weeks a bit mad. Consequently, it's taken me a while to set down some thoughts on how we might get the best out of the market structure group. Attached below is an initial stab at some "terms of reference" to describe the scope and objectives of the group. I thought this might help us to come to a common understanding of what we are trying to achieve. I'm conscious that the one area that is a bit lacking is "Deliverables", ie, what will we come up with as the output from this process? This needn't be a formal "report" - indeed I suspect that establishing a regular process of information exchange and discussion is likely to provide more durable benefits. I'd very much welcome your views on our scope and objective over the next few days. I'd also welcome a brief update on which issues you are all working as a way introducing our interest in the topic of market structure. This should also help to kick-start the process of exchanging ideas. My own contribution is below. I've also attached a couple of documents that I think may be useful. One I prepared for the Federal Energy Commission in Russia as a statement of "What is a foreign investor looking for in a liberalised market?" It was written for an audience for whom a competitive electricity market is an alien concept. For example, we were attempting to change the FEC's mindset that power marketers were an unnecessary layer of costs - because their "tariff" added to other participants tariffs would increase prices. As a result it is very high level and conceptual. However, it has some value as a basic delineation of where the key market structure issues lie. The other documents relate to the proposals for New Trading Arrangements in England and Wales (further information on these reforms can be obtained from the regulator's website at http://www.ofgas.gov.uk/). While far from perfect, these reforms provide a good example of wholesale trading arrangement reform for use elsewhere (for good or bad). I'll be on vacation next week, but on my return I'd like to set up a video conference/conference call to discuss how we can take things further. Any suggestions for agenda items for that would be most welcome. Regards Paul ------------------------------------------ UK Electricity The regulators - Ofgem and the DTI are is undertaking a massive programme of reforming the electricity market in England and Wales. These reforms have followed the UK government's moratorium on new gas plant in late 1997 and are designed to remove perceived "distortions" in the market. The reforms centre on: New Electricity Trading Arrangements (NETA) to replace the Pool from October this year. We have had a significant input into the this process. While generally supportive of the proposals, we have opposed several undue restrictions on managing risk. Plant divestment by major mid-merit generators to increase competition in the price-setting part of the market. We were instrumental in this process, following our analysis late in 1997 of the costs of generator market power to electricity consumers. Divestment has since significantly increased the liquidity and competition in the wholesale market. Despite this the regulator is seeking greater powers to intervene in the wholesale market to prevent market "manipulation". We think this represents an unacceptable extension of regulatory power and are therefore likely to oppose the regulator at the Competition Commission enquiry into this. New transmission access and pricing arrangements. While these reforms may have limited merit, in general we think they're a waste of time and our existing asset positions are significantly exposed. The regulator has just started consulting on this and this is one area that I suspect your experiences in the US and elsewhere might be useful to me.