Re: Cost of Takeover

Alan - thanks for assembling this information. It is very useful but I want
to throw out some ideas for discussion and ask you and others to comment on
the direction we take with this.

I think we should characterize the Cost of Takeover as the difference in cost
between the Nationalization approach Davis is taking and Enron's Market
approach (increase supply, decrease demand, retail competition, utility
solvency). Here's the direction that takes us:

$13 B utility under-recovery: required in both cases.
$7.6 purchase of Transmission: represents a $3.8B excess cost in Davis
plan. Ratepayers were going to pay for the first $3.8B anyway. If Davis
nets this against the $13 B under-recovery, then it's not an excess cost.
Transmission upgrades: required in both cases.
DSM/DG grants: required in both cases.
New construction to cover short position: required in both cases. Cost
difference is net difference between private market cost of generation and
what subsidy CA must provide to induce generation at its desired cost, and
net inefficiency from administering a govt. bureaucracy vs. free market entry
and exit. These will be a function of how 6X is administered.

In other words, I see the direct and measurable Cost of Takeover now as maybe
$4-5 B, including $1B to cover court challenges, legal costs, new bureaucracy
and so on. Much more important (and perhaps this is where the big $$ can
come in) is through indirect costs - damage to California's economy through
reduced private investment because of heavy-handed govt threat, loss of
commercial and industrial development because of short-term supply shortages,
and long term inefficiencies because of public instead of private management.

So how about this: direct cost of takeover is $5 billion plus a long term,
indirect cost of $__ B because of a 5% reduction per year in the rate of new
capital investment in the state. Maybe a Robert Michael or somebody could
fill in the last blank with a little prodding from us.

Alan Comnes@ECT
02/21/2001 01:49 PM

To: John Neslage/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, James D
Steffes/NA/Enron@Enron, Harry Kingerski/NA/Enron@Enron, Susan J
Mara/NA/Enron@ENRON, Jeff Dasovich/NA/Enron@Enron
cc:
Subject: Re: Cost of Takeover

I already have a few changes:

In Davis's Feb 08 press release, it states: "Under Governor Davis' emergency
powers and proposals, California will streamline efforts to bring an
additional 20,000 megawatts online by July 2004, starting with 5,000
additional megawatts by July 2001 and 5,000 more megawatts by July 2002."

Also, he mentions expanding by 1,000 MW the transmission line "to Oregon" in
his 2/16 press conference transcript.

I have just upped the costs to reflect these numbers.