Jim, 

Thanks for taking time to look through the Brattle Group recommendations for 
Japan. 

Some of your comments refer to serious issues in the design of a competitive 
market for electricity here. Brattle's analysis of the Japanese electricity 
system concludes that market concentration is the main reason for the failure 
of current reforms. The recommendations then focus on providing practical 
means of reducing market power in Japan, followed by implementation of a pool 
with bilateral trading to create non-discriminatory access to network 
resources and services.

Would you be able to take some time to talk to Nick O'Day and myself about 
your comments on Tuesday evening? Around 5.30 p.m. your time would be ideal 
for us if you're available.

Best regards
Mark




	James D Steffes
	05/05/2001 09:30 AM
		
		 To: Mark Crowther/AP/Enron@Enron
		 cc: Steven J Kean/NA/Enron@Enron, Richard Shapiro/NA/Enron@Enron
		 Subject: Re: Recommendations for Japanese Electricity Reform

Some thoughts --

1. We argue against the PJM Installed Capacity obligation.  Basically it is 
another rent capture system for generators.  

2. Don't really understand your stranded cost recovery scheme.  Looks like a 
transmission level charge.  Is it $/mw or $/mwh?  

3. Your model for a pool doesn't solve the key problem of market power.  
Putting a pool in place w/o dealing w/ market power is a recipe for disaster.

4. You don't talk about "Market Based Rate" authority.  Would all generators, 
including incumbent generation be allowed to bid their price or must they bid 
cost?  This is critical.  This is the real carrot to get the Utilities off of 
the stick - mandatory participation with cost-based bidding for Incumbents 
until under 1,000 (?) HHI.

Good luck,

Jim





Mark Crowther

04/30/2001 11:56 PM
To: Steven J Kean/NA/Enron@Enron, Richard Shapiro/NA/Enron@Enron, James D 
Steffes/NA/Enron@Enron
cc:  

Subject: Recommendations for Japanese Electricity Reform

Please find attached the latest draft of the Brattle Group's recommendations 
for the Japanese power industry and the accompanying appendices.

You will find changes in emphasis and structure, which make the paper more 
convincing, comprehensive and readable. We have tried to include a global 
view of market objectives in keeping with your approach in Houston, to give 
better explanations of why our recommendations are right for Japan at this 
stage and to address potential objections from deregulation's critics in 
Japan.

In addition to its earlier content, the new draft:

includes a new section setting up the objectives of a competitive market and 
defining a workably competitive market, before making specific 
recommendations to achieve those objectives in Japan;

addresses objections by utilities, etc. in Japan to our proposals. Current 
opinions or issues circulating in Japan include: California crisis, 
discrediting of a tight pool, success of PJM ensured by lack of requirement 
to unbundle, nuclear power development;

emphasizes the need for a strong, independent regulator given METI's recent 
inability to provide clear rules to support its recommendations and lack of 
expertise in the Fair Trade Commission;

de-emphasizes final section on public policy issues to emphasize market 
structure, by merging the public policy issues into one section, placing 
reliability at the top of the list and providing alternatives to achieve 
nuclear policy issues;

proposes implementation timetable in keeping with Japanese review process;

takes a punchier, more urgent approach in the executive summary and the paper 
as a whole.

The paper will be published as a Brattle Group paper commissioned by Enron 
Japan. Much input has been provided by Enron Japan but the economic arguments 
and general approach are in keeping with Brattle's written positions and 
standards. The written style of the paper is, of course, theirs.

We would appreciate any comments you might have on the contents of this 
paper. Since we will release the paper on 15 May and will create completed 
published versions in both English and Japanese by 11 May, please send us any 
comments by the end of this week, i.e. Friday, 4 May.

Best regards
Mark Crowther
Public Affairs
Enron Japan
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