Message-ID: <23507167.1075840217991.JavaMail.evans@thyme> Date: Thu, 19 Oct 2000 05:53:00 -0700 (PDT) From: rob.bradley@enron.com To: michael.terraso@enron.com Subject: Economics Study on Proposed Houston SIP--Preliminary Results Cc: steven.kean@enron.com, joe.allen@enron.com, kenneth.lay@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: steven.kean@enron.com, joe.allen@enron.com, kenneth.lay@enron.com X-From: Rob Bradley X-To: Michael Terraso X-cc: Steven J Kean, Joe Allen, Kenneth Lay X-bcc: X-Folder: \Kenneth_Lay_Dec2000\Notes Folders\All documents X-Origin: LAY-K X-FileName: klay.nsf You might mark your calendar for a lunch (12-1:30) at the Hyatt downtown on Wednesday December 13 where Barton Smith of UH and George Tolley of the U. of Chicago will present the findings of their economic study. The Houston Forum event will be part of the Kenneth L. Lay Lecture Series in Global Economics at the University of Houston. (I will have a table for Enron.) The authors presented their preliminary results to us this week, and the total benefits of the planned ozone reduction (all SIP measures as currently proposed) are below $100 million (we are indoors most of the time that bad air days are occurring since it is typically very hot), and the costs are around $5 billion out to 2010. Lots of caveats to this conclusion including the assumption of today's best technology but no more. The high costs include a "last mile" problem that the proposal of the Partnership's Business Coalition for Clean Air (BCCA) avoids (such as no noon-to-midnight construction, a 75% average point source reduction to allow for trading and future permits instead of a 90% reduction, etc.). The effect on Houston is to reduce our forecast economic growth but not eliminate it. Real wages are forecast to fall by some 5% or more under the current SIP versus without it. Total job loss will be over 100,000--about a 1 and a half years of growth out to 2010. This "shock" will be around one-half of what Houston went through after the oil price crash in 1986 according to Dr. Smith. One might say that slower growth and spreading the pollution around (some of our refinery/petrochemical growth going elsewhere) is not the end of the world, however, if a more cost-effective SIP is chosen. It will be several weeks before the results are final (and the election over), at which time an executive summary will be released. The Mayor's office and TNRCC will be briefed first. The luncheon will be the formal unveiling of the study with explanation, but I expect press coverage of the study next month. As head of the economics working group, I have tried to ensure that a top-notch analysis was done without an industry bias. The results are considered conservative by the authors all things considered and in line with the peer-reviewed literature on costs and benefits. The study is not intended to be a "whining" study but to give us realistic expectations and to (naturally) bring into review some "last mile" problems where certain SIP measures are the least cost effective. These preliminary results are confidential given the political cycle we are in and should not be shared externally. - Rob