Subject: Project Stanley - Recent Meetings with Alberta Government and TransAlta
From: [email-masked]
To: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
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Date: Thu, 31 Aug 2000 11:06:00 -0700 (PDT)

"Privileged and Confidential"

Please note: I have not sent this memo to GPC.   

1.  Meeting with Alberta Department of Resource Development

Rick Shapiro, Aleck Dadson, and I met with two senior officials from the 
Alberta Department of Resource Development last week (Larry Charach, 
Executive Director, Electricity  and Stan Wenger, Assistant Deputy Minister, 
Gas & Alberta Markets) and it is our view that the ADRD is not aware of 
Project Stanley based on some rather awkward questions we were asked by Larry 
Charach relating to our views on whether Powerex has complied with the spirit 
of the rules in Alberta. 

2. Meeting with TransAlta and Other Alberta Marketers

I attended a meeting of Alberta marketers last week hosted and organized by 
TransAlta's trading group.  TransAlta proposed the companies in attendance 
form a coalition whose mandate and objective would be to retain counsel (U.S. 
and Canadian) along with possibly other experts to assist the coalition in 
formulating a strategy designed to address concerns of the invited market 
participants with B.C. Hydro Power Supply, B.C.Hydro Grid Operations and 
Powerex's alleged improper use of the Network Economy Tariff provisions in 
the B.C. Hydro Wholesale Transmission Tariff.  

The attendees at the meeting included representatives from 4 of the 5 Alberta 
PPA Buyers, namely Enron, TransCanada Power, Engage Energy, and Enmax along 
with Atco Power, PanCanadian, Duke Energy, and Aquila.  In addition, although 
Bonneville Power Administration was not in attendance it was interesting that 
TransAlta advised that BPA  shared TransAlta's concerns and was interested in 
working with this group to address these concerns.  

At the meeting TransAlta walked the group through a specific example of a 
situation that occurred in May 2000 where TransAlta alleges that both it and 
TransCanada Power were blocked from using scheduled interruptible 
transmission capacity out of Alberta by B.C. Hydro Power Supply through its 
use of the Network Economy provisions in the B.C. Hydro Wholesale 
Transmission Tariff (which has a higher priority than interruptible 
transmission) during a period when prices were considerably higher in the 
Pacific Northwest than in Alberta.  As a result of the interruption of 
TransAlta's and TransCanada's interruptible transmission reservation, 
transmission capacity between Alberta/BC border and BC/US border became 
available and was immediately acquired by B.C. Hydro Power Supply and used to 
support Powerex exports during these periods into the U.S.    TransAlta 
estimates the opportunity cost  of this curtailment to TransAlta was $2 
million.

TransAlta's frustration is no surprise to Enron Canada.  I can advise that I 
wrote a memo to John Lavorato dated March 17, 2000 in which I reviewed 
Enron's concerns regarding the behavior of B.C. Hydro Power Supply  and 
Powerex that is very similar to the allegations presented by TransAlta.  The 
purpose of my memo to John L was to outline my initial thoughts on what Enron 
Canada may wish to do to attempt to stop this abuse and was focused on the 
idea of proceeding with a complaint to FERC that B.C. Hydro Power Supply and 
Powerex were exercising transmission market power.   Enron Canada did not 
pursue this any further at the time.

Among the ideas reviewed by TransAlta with the group to address and rectify 
the abuse it alleges exist on the transmission path between Alberta and the 
U.S. Pacific Northwest included: 
 i) a complaint to ADRD and a request they become involved;
 ii) a complaint to the Alberta Market Surveillance Administrator;
 iii) a complaint to FERC;
 iv) a complaint to the BCUC;
 v) a complaint to the B.C. Government;
 vi) a complaint to the NEB;
 vii) a complaint to the Competition Bureau; and/or
 viii) a NAFTA complaint.   

With respect to TransAlta's comments relating to the Competition Bureau, they 
advised the group that they have spoken to the Competition Bureau about their 
concerns and were told by the Competition Bureau that it is monitoring the 
Alberta electricity market.   Based on the description provided by TransAlta 
of its discussions with the Competition Bureau and other comments made by 
TransAlta at the meeting I do not believe TransAlta is aware of Project 
Stanley.    I believe the comments made by the TransAlta trader Enron's 
trader last month about the Competition Bureau were not about Project Stanley 
but were in the context of TransAlta complaining to the Competition Bureau 
about B.C. Hydro Power Supply and Powerex's alleged abuse of the Network 
Economy provisions in the Tariff.  

The next step in the coalition building process is a meeting on September 11, 
2000 of those companies that wish to proceed to form a coalition.  The idea 
is that the coalition members would work out the terms of confidentiality 
documentation prior to any member sharing historical information that it may 
wish to provide relating to potential abuses by B.C. Hydro Power Supply or 
Powerex.  In addition they intend to begin to consider which of the possible 
courses of action described above would be most effective.  It appears from 
the discussion at the initial meeting that the option that involves a 
complaint to FERC is the most favored by TransAlta at this time.  Finally, 
they intend to discuss a preliminary budget which TransAlta suggested may be 
in the range of $500,000 Cdn if the group elects to proceed with a complaint 
to FERC.

There are without question a number of reasons why a decision that Enron 
Canada should not even consider having any part of this coalition in view of 
the Project Stanley matter is the safest strategy.  Having said this, Enron 
Canada has a significant commercial interest in seeing this coalition (with 
or without Enron) achieve its objective to reduce or eliminate B.C. Hydro 
Power Supply's and Powerex's ability to use the Network Economy Service to 
block its competitors from access to import capacity into Alberta and export 
capacity into the U.S.   Enron Canada's recent acquisition of the Alberta 
Sundance B PPA (700 MW of capacity dispatch rights in Alberta) makes this 
issue even more commercially significant as the ability to contract for 
transmission capacity without the risk of a reasonable probability of 
curtailment as a result of B.C. Hydro Power Supply invoking Network Economy 
Service would represent a significant risk mitigant for Enron's Sundance B 
long position.   There is also some benefit of participating in the coalition 
to influence the direction it takes and to stay abreast of what it is doing.

I have discussed the matter with Rob Milnthorp and he agrees that the 
decision to participate in the coalition would obviously have to be 
considered and approved by those managing the Project Stanley issue.   If the 
decision of the Project Stanley team is that Enron Canada must steer clear of 
this coalition because of Project Stanley, then Rob M and other commercial 
guys in ENA who do business with Powerex will not need to give further 
consideration to additional reasons why Enron Canada may elect not 
participate such as: i) the implications on Enron Canada's and ENA's 
commercial relationship with Powerex, ii) whether Enron Canada  would be 
prepared to commit to anything more than attending the first meeting of the 
coalition with a view to understanding the nature of the confidentiality 
obligations, the favored course of action, and the budget,  iii) whether 
Enron Canada would explicitly reserve the right to withdraw from the 
coalition at any time, and iv) whether Enron would want to be in a coalition 
with BPA who I understand we believe may also be engaged in exercising 
transmission market power .  To complicate this further, Enron Canada is 
presently being sued by TransAlta over the interpretation of the wording in 
two swap transactions and Rob Milnthorp has indicated that Enron Canada will 
not agree to participate in any coalition with TransAlta unless and until 
TransAlta discontinues this lawsuit.  

I look forward to your comments and feedback on this issue.

Regards,

Rob