It seems to me that this information leads one to conclude that the value of 
an open transmission network is that California does not have to build 5,000 
MW of power plant (4,500 MW max input + 10%) in state.  In other words, if 
California were to disconnect from the grid, someone would have to build 
additional power plants in-state.

The cost to California consumers is therefore the annual carrying cost of 10 
500 MW plants (made even more expensive after California expropriates the 
current fleet of merchant generation).

From the perspective of the remainder of the West, the question still remains 
- if California does go it alone, what is the economic impact?  Other than 
legal arguments about Interstate Commerce, why should the Federal Government 
want to continue to pursue open acess?  This is the hard question that we 
need to answer.  

Jim






	Alan Comnes@ECT
	02/27/2001 09:40 PM
		 
		 To: James D Steffes/NA/Enron@Enron, Jeff Dasovich/NA/Enron@Enron
		 cc: Susan J Mara/NA/Enron@ENRON, Steve Walton/HOU/ECT@ECT, Mary 
Hain/HOU/ECT@ECT
		 Subject: Cost of Protectionism

Jim, Jeff:

Jim asked me in a voice mail what would be the cost to California of moving 
from the current (evolving) system of open access to a "protectionist" 
environment where access to the grid would be determined by a political body 
responding to populist pressures.

Here are some things to consider.  We can talk more and I welcome Sue Mara or 
Steve Walton's input:

California is a net importer so any restraint of trade would risk the state 
being able to meet its own demand.  See attached slides that show PNW-CA 
trade.  Even in the winter, power on a net basis flows south.

Limiting open access would primarily act to hold in-state generators hostage.
 this will kill incentives for new investment

If the ISO's proposal for market power mitigation are any guide of where a 
protectionist ISO would go:
 in-state generators would be required to sell forward or lose their market 
based rate certificates
 load serving entities would be required to contract forward for load and a 
reserve margin.  
  This is costly: it will lead to centralized planning solutions to 
reliability rather than more efficient market     outcomes
 Artifical notions of "just and reasonable" rates (on top of unreasonable 
reserve requirements) would lead to severe   reliability problems.  (In other 
words, if Steve Peace has his way, the imports into the state will drop 
off     signficanly)

There is no reason the state would be more effective at expanding the grid 
(e.g., Path 15) than the current system.  (Although, admittedly the current 
system has flaws.  The CAISO was set up with little thought to transmission 
expansion planning.  Other RTOs are not repeating this mistake.).
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