Re: Message Points

----- Forwarded by Jeff Dasovich/NA/Enron on 11/01/2000 04:59 PM -----

David Parquet@ECT
11/01/2000 03:24 PM

To: James D Steffes/NA/Enron@ENRON
cc: Jeff Dasovich/NA/Enron@Enron, Joe Hartsoe/Corp/Enron@Enron, Karen
Denne/Corp/Enron@Enron, Mary Hain/HOU/ECT@ECT, Mona L
Petrochko/NA/Enron@Enron, mpalmer@enron.com, Paul Kaufman/PDX/ECT@ECT,
Richard Shapiro/NA/Enron@Enron, Sandra McCubbin/NA/Enron@Enron, Sarah
Novosel/Corp/Enron@Enron, skean@enron.com, Susan J Mara/SFO/EES@EES@ENRON,
Tim Belden/HOU/ECT@ECT
Subject: Re: Message Points

Looks good, except for the comments on "discourages generation". Make it
"discourages peaking generation".

Although I agree that any price cap has a "discouraging " impact on the
generation market, it is a matter of degree in this sound bite environment.
To the point, without a creative exit strategy, I would not waste development
money on a 10000-13000 BTU/KWh heat rate peaking project. However, even with
the FERC order, I will continue to spend money developing base load, 7000
BTU/KWh heat rate projects. The state is tremendously short on power, the
price cap goes away (theoretically) in two years, $150 is well above the
average expected price in our forcast models (although I agree not above the
price for particular hours if scalers are applied.)

James D Steffes@ENRON
11/01/2000 11:39 AM

To: Jeff Dasovich/NA/Enron@Enron
cc: David Parquet/SF/ECT@ECT, Jeff Dasovich/NA/Enron@Enron, Joe
Hartsoe/Corp/Enron@Enron, Karen Denne/Corp/Enron@Enron, Mary
Hain/HOU/ECT@ECT, Mona L Petrochko/NA/Enron@Enron, mpalmer@enron.com, Paul
Kaufman/PDX/ECT@ECT, Richard Shapiro/NA/Enron@Enron, Sandra
McCubbin/NA/Enron@Enron, Sarah Novosel/Corp/Enron@Enron, skean@enron.com,
Susan J Mara/SFO/EES@EES, Tim Belden/HOU/ECT@ECT
Subject: Re: Message Points

I agree with much of what Jeff has written. Here are some additions -

On FERC getting a lot right, look at the Order in relation to our 4 key
points filed in the White Paper -
Removing Market Transparency - Still need FERC to take action
Development of Forwards Market and Risk Management - Great results
Removing distortions on Prices - Wrong action
Ending Cal ISO / Cal PX Stakeholder Boards - Great results

On the risk management issue, FERC itself said "The single most important
remedy that California market needs is the elimination of rules that prevent
market participants from managing risk". [FERC PRESS RELEASE]

ADD - FERC Staff did a great job on preparing a detailed analysis of the
market issues.

Jeff Dasovich
Sent by: Jeff Dasovich
11/01/2000 01:17 PM

To: Richard Shapiro/NA/Enron@Enron, James D Steffes/NA/Enron@Enron,
skean@enron.com, Joe Hartsoe/Corp/Enron@ENRON, Sarah
Novosel/Corp/Enron@ENRON, Tim Belden/HOU/ECT@ECT, Mary Hain/HOU/ECT@ECT,
Susan J Mara/SFO/EES@EES, Mona L Petrochko/NA/Enron@Enron, Sandra
McCubbin/NA/Enron@Enron, mpalmer@enron.com, Karen Denne/Corp/Enron@ENRON,
David Parquet/SF/ECT@ECT, Paul Kaufman/PDX/ECT@ECT
cc:
Subject: Message Points

Here are the messages as I understand them. Please let me know if I've
misconstrued anything. Thanks.

FERC got a lot right in the order and we're very encouraged as a result.
In particular, ending the PX buy/sell requirement and permitting utilities to
manage risk through a portfolio of short and long term contracts is a
fundamental step in the right direction.
However, the proposed price cap is unworkable and will jeopardize realibility
in California. As structured, it will:
discourage the development of new generation to serve California
fail to provide adequate incentives for demand responsiveness.
force Enron to abandon 300 MWs of new power projects planned for California.
We look forward to participating in FERC's process and are hopeful that
FERC's final order will fix the deficiencies in the current price cap
proposal.
We encourage California to work with FERC to implement the proposals and
quickly fix the flaws in the market on behalf of the state's consumers.