Littlechild paper on info provision in Italy

Thanks for copying me Paul. I fed some of my own comments on first draft
direct to Littlechild when I saw him in our Amsterdam office last week. Are
you satisfied that your points have now been adequately taken into account in
second draft/ final?

As to your question, yes I think he really does believe what he writes;
having met him twice now, I am quite impressed by his quick comprehension and
his dedication to the cause of real competition in transparent markets.

Sorry I've missed the "relations with TenneT" meeting today - have just come
into Madrid office.
Peter.

p.s. Lisa Waters left the energy users' group some time ago; she is now
working for Dynegy on UK reg affairs and is pregnant courtesy Kyran Hanks!

PAUL MEAD
04/06/2001 13:05
To: Alfredo Huertas-rubio/Enron@EUEnronXGate @ ENRON
cc: Peter Styles/LON/ECT@ECT

Subject: Re: FW: paper on info provision

Have read paper. Great start. Would probably want to change some stuff, but
given time constraint, probably good to raise the issue and fill in detail
later.

My comments:

As you know, main argument from OMEL was that revealing info was a deterent
to small players entering the market - because everyone would know what they
are up to. Perhaps good arguement is that it is a tradeoff - more info at
start to address competition imbalances, then changing in future to reveal
less about smaller players activities.........? Maybe we should get Paul D
to ask EIUG (Lisa Waters - demand side and smaller participants) in the UK
for their view of whether they thought more info was better or worse.......

Other OMEL argument was collusion. If info is not available then it is
illegal for large players to collect and use it and therefore collusion
through the use of info becomes illegal. However, when it is published, it
is available, and therefore use of it was seen to be not illegal. Don't
agree with this logic. It is the act of colluding that is wrong, not the
means by which you do it. Providing info allows more policing of bids etc
and therefore increased likelihood of collusion being caught. Maybe provide
example of how academics etc used UK Pool info to catch NP/PG? Also, it is
not provision of info that leads to market power. Market power is either
there or it's not (Herfendale Index?) - its primarily a function of market
share in certain times of day and in the different DA, Intraday, Real-Time
markets. More or less info will not address market power - divestiture
does. If the market believes market power is already present (Spain and
Italy), they need the info to determine the extent to which this power can be
exersized and which markets to stay clear of. Finally, GREAT POINT IN LAST
PARAGRAPH OF 'FACILITATING COLLUSION PARAGRAPH' - "COLLUSION IS UNNECESSARY
FOR THE EXERSIZE OF MARKET POWER: IT CAN BE DONE INSIDE ONE COMPANY" Love
it......

Perhaps also introduce the info asymetries point. Without publishing the
DATA, the INFORMATION available to the market is tilted considerable in
favour of those that can set price.

Need also to address TIMING of market data release. Why sooner is better
than later. Have still not fully thought through the best way to argue
this........ Possible answer may be that the market changes every day and for
the market to become liquid, players need to be able to trade and adjust
their position each week, day, hour - particularly the load side. Can maybe
use California here. Need load side to be as responsive to prices as
possible and understand what is driving them to allow demand to respond to
price signals - something that did not happen in CA. Also, market power can
be used a lot in the short term. It only takes a few hours of crazy prices
for the monthly average to change considerably. Possible example for timely
release and short-term effects is the change to LOLP mechanism that
Littlechild imposed - the 8-day average for XMAX (Capacity) when Gencos were
gaming LOLP day to day (see Paul D)

Finally, does Littlechild really believe in this stuff? That is important to
know before we facilitate him being thrown into the debate as he needs to be
able to roll through the punches. If he is, and based on this first draft,
he should be a very powerful ally.

PM