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Enron Mail |
FYI
---------------------- Forwarded by Nicholas O'Day/AP/Enron on 05/01/2001 10:56 AM --------------------------- Nicholas O'Day 04/30/2001 12:01 PM To: John Sherriff cc: Subject: EPower Regulatory situation John, after two preliminary meetings with EPower project managers on regulatory issues and several discussions with Carey, it is clear that a lot of work needs to be done on the regulatory front for EPower. For a start, we need to go back and address the fundamentals: the implications of Japan's deregulating market on forward power prices the permits required for construction and operation of power plants and related facilities, and the time needed to obtain those permits the ability to access the transmission network at the preferred sites in a timely and cost effective manner Over the next few weeks, I will be undertaking a comprehensive regulatory review and will develop a lobbying strategy to address each of the barriers to timely development of EnCom's projects. Having said that, there is a real possibility that the permitting process cannot be shortened within an acceptable time frame, or that an assessment of forward power prices suggests that under certain scenarios it would be uneconomical to proceed with development of one or more of the projects. Forward Power Prices. EPower is currently using a projected forward power price for 2007 and beyond based on the price paid by TEPCO to IPPs in 1995/96. Deregulation is inevitable in Japan and international experience suggests that a period of significantly lower wholesale power prices will likely follow, particularly given that Japan is likely to be in generation surplus until at least 2010. Permitting. EPower has indicated that it recently discovered that the permitting process for Aomori project will take 7 years to complete, without a significant lobbying effort. Prior to that, EPower believed that permitting would take 3 years. Again, EPower based the 3 year permitting estimate on the estimates of bidders in the 1995/ 96 IPP program. However, most of the IPP proposals involved repowering of existing plants which reduced the permitting time. In addition, the IPP program commenced prior to the introduction of the current environmental laws. Transmission Access. EPower has said that Chugoku Electric advised them that it will take approximately 10 years and in the order of US$200m to connect the proposed Ube plant to the transmission system. In addition, we have preliminary indications that Tohoku Electric are looking at a similar time frame to connect the Aomori project to the grid. We have already started to address the transmission access issue. EPower acknowledges that it needs a better understanding of the dynamics of the transmission system to address in a meaningful way the concerns raised by the utilities on connection to the transmission system. Both EPower and Enron Japan have sufficient primary information on the transmission system for David Mason in the London office to develop a dynamic model. Armed with the information from the model, together with a more thorough understanding of the rules of connection to the transmission system, we aim to be in a position to negotiate in a more meaningful way with the relevant utilities. Project Valuation. These issues have a direct bearing on what I understand EnCom's value proposition to be - to take first mover advantage in Japan to build, own and operate power plants in Japan more efficiently than the incumbents. After almost twenty months operating in Japan, it may be timely for EnCom to review this proposition. I have proposed to Carey that in conjunction with the regulatory review that he arrange for a reassessment of Encom's projects using a robust and objective approach with input from Ariga (Domestic plant development), Andy Foote/ Ed Cattigan (International plant development) and Jane McBride (legal). As part of that reassessment, I have suggested that EPower price the typical risks associated with project development - financing, construction, commodity, operating, market, legal, regulatory and political risk with a view to making a financial assessment of each project on a best case, worst case and mid case scenario. The aim is to lay all the development risks out now so that we can make an informed decision on projects and quickly assess the implications of events as they arise through the course of project development. John, it would be good to talk about these issues prior to the EPower conference call on Wednesday. Today is a holiday in Japan, but feel free to contact me at home or alternatively, I will be in the office Tuesday. My contact numbers are as follows: Work 813 5219 4583 Home 813 52610539 Mobile 8190 2733 4795 kind regards
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