Message-ID: <4402382.1075853432183.JavaMail.evans@thyme>
Date: Mon, 21 May 2001 10:04:00 -0700 (PDT)
From: steve.hall@enron.com
To: elizabeth.sager@enron.com
Subject: Financial vs. physical
Cc: christian.yoder@enron.com
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Elizabeth,

As punishment for ignoring its pleas for price controls, last week the CPUC 
issued an order requiring the California IOUs to develop market-based rate 
tariffs for their Federal customers, e.g., military installations, federal 
agencies.  The CPUC thinks that by exposing the Federal government to current 
market prices it will cause Bush/Cheney to rethink price caps.  In any case, 
while I think this proposal is unconstitutional under the principles of the 
McCulloch v. Maryland case (states can't tax the federal gov.), I also think 
there might be a business opportunity here for EPMI in helping Federal 
enclaves lock in a fixed price for electricity.  In other words, offer these 
Federal entities a fixed-for-floating deal.  

Stewart Rosman suggested that the best way to handle this would be to offer 
the Federal entities a purely financial deal.  The Federal entities would 
continue to receive physical delivery from their utility but could lock in a 
fixed rate through a financial swap.

Before we get too far down the road on this, what are your thoughts?  Can the 
Federal gov., besides the U.S. Treasury, enter into derivatives contracts?  
While financial deals would appear to be superior because they involve less 
ongoing work (no physical scheduling or real time support), are there 
benefits to a physical transaction?  Any other ideas?

Steve