FYI- Seabron, as most of you know, is a consultant for us... his thoughts on 
FERC price cap order.
---------------------- Forwarded by Richard Shapiro/NA/Enron on 04/26/2001 
03:14 PM ---------------------------


"Seabron Adamson" <seabron.adamson@frontier-economics.com> on 04/26/2001 
02:41:45 PM
To: <Richard.Shapiro@enron.com>
cc:  

Subject: What's ahead for California


Rick:

A thought I keep coming back to is that a lot of this has to do with bad
"market definition" - always the central problem in economic questions.
California has gotten itself in a pickle partially because they have always
looked at the market wrong - as California alone when it is really the West.
It is like looking at the market for new automobiles "West of the
Mississippi" - a pretty meaningless concept as cars are produced on either
side of that artificial boundary, and are freely bought and sold across it.
When you get the market definition wrong it is almost impossible to make
head or tails of any situation - which the Cal ISO and Gray Davis's office
have in fact failed to do.

The current proposal will generally fail - the market will just clear
outside California. It only acts as a form of price discrimination against
the California generators, who will then presumably sue for restraint of
interstate commerce. There is no way there are going voluntarily to agree to
be "Participating Generators" in the Cal ISO's scheme. So the entire market
will become "OOM".

I think if the leadership had not been so abysmal on this there could have
been a rational deal between the CA gov't and the generators that would have
solved the basic problem, kept the lights on and minimized the economic
damage to the California economy and the state's bond rating. But it hasn't
happened, and Moody's now ranks California debt at 49th of the 50 states,
only notch above Louisiana. This is going to cost California's citizens
billions for years to come in higher borrowing costs, even for the normal
expenditure of government such as highways and schools. Time for a timeout,
and to regroup. Even the old regulatory process at the CPUC wasn't this
bad...

Speak to you next week.


Seab



This e-mail, and any attachments thereto, is intended only for use by the
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Seabron Adamson
Frontier Economics Inc
Two Brattle Square
Cambridge, MA 02138 USA
Ph:  (617) 354-0060
Fax: (617) 354-0640
seabron.adamson@frontier-economics.com

www.frontier-economics.com

-----Original Message-----
From: Richard.Shapiro@enron.com [mailto:Richard.Shapiro@enron.com]
Sent: Thursday, April 26, 2001 3:22 PM
To: Seabron Adamson
Subject: Re: Sorry I missed your call



I agree- it's not clear to me whether Cal. squares off with the feds on the
RTO issue. All in all , a bad order that will only worsen the situation,
not improve things( I'm saying that w/o benefit of order which is'nt out
yet. Any thoughts?




"Seabron Adamson" <seabron.adamson@frontier-economics.com> on 04/26/2001
02:14:35 PM

To:   <Richard.Shapiro@enron.com>
cc:

Subject:  Sorry I missed your call


Rick:

Sorry I missed your call. I had just popped out for a coffee.

I'll just wait until next week before proceeding, after I get some comments
from you guys. I should pretty much be around all next week so you can
catch
me whenever.

I suppose you have been following the FERC California decision pretty
closely. How CA gets integrated into a new RTO appears to be the key
question. I would be surprised if RTO West even wants them in, given the
credit risk issues, etc.



Seab



This e-mail, and any attachments thereto, is intended only for use by the
addressee(s) named herein and may contain legally privileged and/or
confidential information.  If you are not the intended recipient of this
e-mail, you are hereby notified that any dissemination, distribution or
copying of this e-mail, and any attachments thereto, is strictly
prohibited.
If you have received this e-mail in error, please immediately notify me at
(617) 354-0060 and permanently delete the original and any copy of any
e-mail and any printout thereof.


Seabron Adamson
Frontier Economics Inc
Two Brattle Square
Cambridge, MA 02138 USA
Ph:  (617) 354-0060
Fax: (617) 354-0640
seabron.adamson@frontier-economics.com

www.frontier-economics.com
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