Message-ID: <27274382.1075844250119.JavaMail.evans@thyme> Date: Thu, 7 Jun 2001 09:42:00 -0700 (PDT) From: alfredo.huertas-rubio@enron.com To: richard.shapiro@enron.com, peter.styles@enron.com, maureen.mcvicker@enron.com Subject: RE: Kean's speech Cc: fiona.grant@enron.com, paul.hennemeyer@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: fiona.grant@enron.com, paul.hennemeyer@enron.com X-From: Alfredo Huertas-rubio X-To: Richard Shapiro, Peter Styles, Maureen McVicker X-cc: Fiona Grant, Paul Hennemeyer X-bcc: X-Folder: \Richard_Shapiro_June2001\Notes Folders\Discussion threads X-Origin: SHAPIRO-R X-FileName: rshapiro.nsf SPAIN AND CALIFORNIA Please, note that the regulator (CNE, advisory body) has recently declared that "the California situation cannot happen in Spain, although it is likely that some isolated blackouts may happen in the East coast this summer". Physical crisis in Spain To me, it is not necessary to have a total blackout to admit that load margins in the Spanish power market have been recently decreasing, and that more generation capacity is needed! In fact, REE (Red Electrica de Espana, the transmission company and TSO) is relatively worried about shortages of capacity if demand keeps growing as in the recent years (6-8 percent). In Spain, no major power plants have been built in the last 20 years. The avalanche of new generation projects that have been announced (including Enron's Arcos CCGT 1200MW) since 1998 (outset of liberalisation) could cope with the need of new generation if firm access to gas transportation, regasification and transportation infrastructures is guaranteed. Authorisation procedures for the construction of new power plants is not that bad, and so it is connection to the electricity grid. However, access to gas pipelines still remains as the big issue to ensure the gas arrives to these new gas fired power plants, but mostly, that some of the CCGTs projects (as Enron's) get financed (find attached the memo about the Enron's Arcos power plant). Pipelines are owned are managed by Enagas, which is 100 percent owned by Gas Natural, who controls more than 95% of gas supplies in Spain. MESSAGES (they are not confrontational to anybody) 1. Prompt and adequated development of the gas system to make sure new gas fired plants are built. 2. For these new CCGTs to get financed, it is necessary that firm and continuous access is ensured by Enagas. Financial crisis in Spain The regulator has also said that given the "vertically integrated structure of the Spanish power utilities, it is impossible that the California's financial crisis happen". This is only partially true because the CTCs buffer (stranded costs payments) have mitigated the financial stress of the utilities when they have faced increasing fuel costs. In reality, what will prevent a financial crisis in Spain will be the Government, by increasing tariffs if things go nasty. However, from the Enron perspective, the existence of CTCs is distorting the market, both for retailing activities and the development of power projects, since market prices are not driven by demand and supply fundamentals. MESSAGES (they are not confrontational to anybody) 1. Applaud the speed of liberalisation of the power market and the attempts of the Spanish goverment to make the transitional period as short as possible. (By 2003, all customers will be eligible). 2. It is necessary to go deeper into the separation of regulated (distribution) and non-regulated activities (generation and supply), facilitating the introduction of more competitors on the generation market, and reducing the market share of incumbents. ITALY AND CALIFORNIA Similar messages regarding the development of the gas system in Italy as those in Spain are equally valid. In addition, please note. MESSAGES (they are not confrontational to anybody) 1. Applaud the recent efforts by the goverment to make simpler and more expedite the authorisation processes for building new power plants. 2. It is imperative that the Italian TSO facilitates the localisation of new power plants by providing accurate and prompt information about the transmission system capacity and expansion plans. The TSO must be there to help new developers (actually, the Italian TSO is very aware of this and has publicly declared to wish to go in this direction). 3. The Italian Power Pool was due for Jan 2001, but its start has being delayed, and it is uncertain when it will happen. For new entrants, to have the Pool live and running is of special interest to a) increase the understanding of the supply and demand fundamentals in the Italian market and b) to increase liquidity. Also, make sure you mention that the Pool should help entry by providing as much as detailed information as possible to all participants, mostly on its inception phase. Please, find attached a short summary of the Arcos situation. The main issue here is that Enagas (gas transco monopoly) is trying to grant access to transportation and regasfication infrastructures CONDITIONAL to the construction of a number of new infrastructures, which are also subject to obtaining permits issued by the authorities. Instead, the regulator (CNE) has basically imposed Enagas an obligation to build and grant access to Enron on a firm and continuous basis, that is, no conditional. The regulator's decision is binding but not normative. -----Original Message----- From: Shapiro, Richard Sent: martes, 29 de mayo de 2001 16:15 To: Styles, Peter; Huertas, Alfredo Subject: Kean's speech Also, anything explaining Spanish regulator's decision re: Arcos would be helpful if you could forward. Thanks. ---------------------- Forwarded by Richard Shapiro/NA/Enron on 05/29/2001 09:13 AM --------------------------- Richard Shapiro 05/29/2001 09:13 AM To: Peter Styles/LON/ECT@ECT cc: Subject: Kean's speech Could you please forward to me the briefing materials you prepared for Steve's speech in Madrid? Thanks.