Message-ID: <6296340.1075844079026.JavaMail.evans@thyme> Date: Tue, 31 Oct 2000 03:25:00 -0800 (PST) From: lorna.brennan@enron.com To: steven.harris@enron.com, jeffery.fawcett@enron.com, lorraine.lindberg@enron.com, kevin.hyatt@enron.com, christine.stokes@enron.com, tk.lohman@enron.com, michelle.lokay@enron.com, lindy.donoho@enron.com, lee.huber@enron.com, susan.scott@enron.com Subject: Duke Stands By Their Man Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Lorna Brennan X-To: Steven Harris, Jeffery Fawcett, Lorraine Lindberg, Kevin Hyatt, Christine Stokes, TK Lohman, Michelle Lokay, Lindy Donoho, Lee Huber, Susan Scott X-cc: X-bcc: X-Folder: \Michelle_Lokay_Dec2000_June2001_1\Notes Folders\Discussion threads X-Origin: LOKAY-M X-FileName: mlokay.nsf Note: See the last paragraph on power plant plans. Lorna Duke Stands By California Market In the midst of much uncertainty surrounding California's power situation, Duke Energy North America Monday reiterated its commitment to the state's struggling wholesale electricity market, announcing new bilateral power deals with Pacific Gas and Electric Co. and progress with redevelopment plans at three coastal power plant sites it is operating. "Duke is committed to continue playing a major role to help California address its electricity shortfall and the high prices many felt this summer," said Bill Hall, Duke's vice president for the western region in North America, noting that brownfield projects in California have turned out to be more difficult than new plants to site, based on Duke's experience over the last three years. In response to questions, Hall acknowledged that Duke is constantly reassessing its position in California and a return by the state energy officials to a cost-based regulated market would cause him a lot of concern, but he is confident at this point that for the long-term market solutions will be applied. He said in his meetings with state political and regulatory leaders he is convinced they know the state can't turn back to a traditional command-and-control regulatory structure and they recognize that "multiple solutions" are needed, including balancing supply/demand for power. "We believe that new generation coming on line throughout the West in the next few years will lessen the market volatility and markets will begin to react based on supply/demand stability," Hall said. Both Hall's and Duke's western trading executive, Nancy DeSchane, said they are very anxious to see what the Federal Energy Regulatory Commission releases Wednesday with its initial draft decision on what it will do to address California wholesale electricity prices, including whether it intends to extend the California Independent System Operator's (Cal-ISO's) authority to impose price caps. Hall said Duke has signed a series of "substantial long-term wholesale electricity contracts" with PG&E's utility that will "help stabilize the price volatility for the distributor's retail customers." He would not disclose the terms of the deal, including the volumes and duration, but said the supplies are slated to be received in the state's northern zone (NP-15). Earlier Duke offered California utilities five-year deals at $50/MWh. Duke's Salt Lake City-based trading arm is doing the deal, rather than its California-based generation plants, meaning the power could come from sources inside or outside of the state. Hall said Duke has begun work with local city officials in the San Diego suburb of Chula Vista to accelerate the current schedule for replacing the South Bay Power Plant, which Duke leases with an option to buy. "We hope within the next year we'll be able to announce what we can do to expedite the replacement of this facility," he said. Following approvals from the state and a local water permit last week, Duke will begin its $500 million modernization of Moss Landing Power Plant along the north central coast "within the next 30 to 60 days," Hall said. The upgrade will add 1,060 MW to the site's current 1,500-MW capacity and will require a 30-40% increase in the plant's natural gas requirements, which PG&E's gas utility assures can be handled by the existing pipeline infrastructure. "We've had discussions with PG&E, and we're obviously concerned that we have sufficient infrastructure to transport gas that we purchase into the system," Hall said. "We're confident that their infrastructure can support Moss," although, he added, that statewide "we certainly have concerns about the gas infrastructure" and Duke is working with state officials to assure there are adequate gas supplies. "We had some problems this summer in Southern California, and San Diego Gas and Electric recently announced it is going to begin an intense look at what needs to be done to upgrade its (gas pipeline) infrastructure to support the new generation plants coming on board." Salt Lake City-based DeSchane said Duke has a "balanced" portfolio of supply and storage contracts, noting that she thinks her company has a "very strong physical position in the West for gas," and the trading unit will be working over the next couple of years "to assure that the gas position is sustained and continues to grow." Down the central coast about 80 miles at Morro Bay, Duke has resubmitted revised plans for totally replacing the 1950s-era power plant in a renovation that will build a new $600 million 1,200-MW plant. With prompt state approvals, Hall said Duke could bring the new plant online by the summer of 2003 and demolish the existing (1,000-MW) plant by 2007, adding that PG&E cannot deliver additional gas supplies so the added output is a product of the anticipated improved efficiency of the new plant.