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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Karen Denne X-To: Jeff Dasovich X-cc: X-bcc: X-Folder: \Jeff_Dasovich_June2001\Notes Folders\All documents X-Origin: DASOVICH-J X-FileName: jdasovic.nsf Ken needs to be aware of this -- has he had any conversations w/ Bailey? ---------------------- Forwarded by Karen Denne/Corp/Enron on 05/01/2001 05:22 PM --------------------------- Susan J Mara 05/01/2001 03:25 PM To: Mark Palmer/Corp/Enron@ENRON, Richard Shapiro/NA/Enron@Enron, Jeff Dasovich/NA/Enron@Enron, Janel Guerrero/Corp/Enron@Enron, Karen Denne/Corp/Enron@ENRON, Sandra McCubbin/NA/Enron@Enron, James D Steffes/NA/Enron@Enron, Harry Kingerski/NA/Enron@Enron, Paul Kaufman/PDX/ECT@ECT cc: Subject: OpED Editorial SacBee Lauding Williams CHairman's New Position Favoring Caps I got this from one of my Williams counterparts. Daniel Weintraub: An energy trader says it's time to limit profits (Published May 1, 2001) In a sea of angry finger-pointing, name-calling and ridicule, Keith Bailey stands out as an island of calm, a lonely voice of reason who understands that a company's long-term self-interest is about more than how much money it can make today. Most Californians probably have never heard of Bailey, a Kansas City native and chief executive officer of Tulsa-based Williams Cos. -- a private energy trader that has profited handsomely from the state's recent miseries. But Golden Staters from Gov. Gray Davis on down ought to embrace this Oklahoma resident. He might be the man who saves our future. Bailey is proposing that federal electricity regulators place temporary caps on the profits that he and his competitors may earn between now and fall 2002, when supply and demand will be closer to balance and sanity might return to the West's energy market. His rationale is this: To save California's private electricity market, new power plants are desperately needed. But not enough of those plants will be built if generators are not confident they will be paid for the product they already are providing. Californians, though, don't want to promise payment without knowing they will be able to afford the bill. Short-term caps on profits, Bailey believes, are the best way to ease the state's fears, get everybody paid and move on to a system that works -- for suppliers and customers. "One of the things we are hoping to do with our proposal is create something that California can look at and say, 'So long as prices are determined on this basis, we're prepared to pay,' " Bailey said in an interview. "This is a mechanism that lets the state say, 'We're not signing a blank check. We don't know what the price is going to be, but we do know how it will be determined.' " Bailey's proposal is different from the limited price caps approved last week by the Federal Energy Regulatory Commission -- and far better for California. The federal caps would come with all sorts of strings attached, would kick in only during emergencies and would be focused on prices, not profits. Bailey is proposing that all power sold from now through summer 2002 be priced at the cost of producing it, plus a profit of 15 percent. That's more than a regulated utility would make but less than most private companies seek, and far less than electricity providers have been earning of late. Cynics might note that Bailey is proposing caps only after his company has squeezed all it can from California. The firm reported last week that profits doubled in the first quarter of 2001 over a year ago, with pretax income from its energy services nearly tripling, to $600 million. Much of the 4,000 megawatts of electricity that Williams controls in California is already committed in long-term contracts -- so Bailey has relatively little to lose if what remains can only be sold at controlled prices. But here is at least one measure of Bailey's sincerity: His company still is owed $252 million for electricity it has provided California. And he's not insisting that the debt be paid before his proposed profit caps take effect, or even as part of the deal. "Clearly there is a past that has to be dealt with," he said. "Whether that ultimately gets dealt with in bankruptcy court or negotiations with the parties, it will sort itself out one way or another. Perhaps if we find prices that work going forward, that could be used as a framework." Bailey, an engineer by training, says no one should mistake his proposal for a lack of confidence in free markets. He still firmly believes that a deregulated energy market would be best for California and the rest of the West in the long term. He just wants to make sure there is a long term. Bailey is watching, and listening, to California. He hears talk of seizing power plants, of turning to a public power system. He describes these ideas as Draconian and says they would not solve the problem. But he also knows there is a limit to what Californians -- and their elected leaders -- can take. "I recognize we live in a democracy, and lots of things could happen," he said. What he is proposing, in effect, is a safety valve. He wants to limit the market in order to save it. "This is an extraordinary situation," Bailey said. "We need to help create some breathing room. ... We all have to work together, and this is the right thing to do." Bailey's proposal, made at a conference of energy producers and traders in Oklahoma last week, was almost lost amid all the focus on the price caps approved in Washington. But there is still time to give the idea the attention it deserves. Properly nourished, it could be the breakthrough that solves this crisis. Davis and others in California should seize the moment. Sue Mara Enron Corp. Tel: (415) 782-7802 Fax:(415) 782-7854
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