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Enron Mail |
I appreciate the succinct summary and lead time and we will get our thoughts
to you on Friday.----cgy To: Monica Lande/PDX/ECT@ECT, Robert Badeer/HOU/ECT@ECT, Christian Yoder/HOU/ECT@ECT cc: John J Lavorato/Corp/Enron Subject: Forward Index Position We potentially have a huge exposure associated with forward index sales in California. If the FERC implements a "soft cap" then the index that they post will not exceed this "soft cap" even if the PX (for PX markets) or the ISO (for the ex post market) buys a material quantity of energy above the "soft cap" price. The FERC is likely to implement either a $100 or $150 "soft cap." Let's say the FERC implements a $100 "soft cap." It is likely that there would be 20,000 MW of demand at that price and perhaps 5,000 MW of supply (I made these numbers up). I am not sure how the PX would allocate its scarce supply -- a logical way would be pro rata which means that each buyer would be awarded 25% of its bid. So let's say we were short 100 MW of index and went to buy it back from the PX each day. We would have to submit bids for 400 MW in hopes of getting 100 MW. Eventually buyers would bid for many multiples of their load, driving demand up while supply remains fixed thus lowering the percentage that each buyer receives. To fix this problem, the PX could limit the amount that you could bid for in their market based on how much load you serve. EES might argue that they can bid since it is their load. Long story short -- their are lots of ways for this to explode into a big problem for us and only a few ways for things to turn out fine. Here's what I'd like to do. First, I would like to get a download of all Index Forward deals currently on the books for delivery starting in January of 2001. I want to see all important deal attributes in a spreadsheet. I think that the result of this process will be that we are short up to a couple of hundred MW of index power in California over the next two years. Bob Badeer will lead that effort. Then, I need to understand what our legal position is with respect to the FERC, ISO, and PX redefining the index. Do our contracts give us an out if the index materially changes in a way so that it no longer reflects a competitive market clearing price where supply and demand balance? Christian Yoder should be the point person on that effort. Thanks for your help on this matter. I will be out of the office on Wednesday, Thursday, and most of Friday. I would like some answers to this, to the extent that anwers are knowable on the legal side, by Friday.
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