F.Y.I.

Business World: How California Turned Out the Lights
By Holman W. Jenkins Jr.

08/30/2000
The Wall Street Journal
A27
(Copyright (c) 2000, Dow Jones & Company, Inc.)

Back in the 1970s, National Lampoon proposed a solution for inflation: pay
people less in salaries and wages, and
charge less for things in stores.

Now the state of California has seized upon the identical solution for its
electricity woes. By fiat, it has lowered the
price that utilities are legally allowed to pay for bulk electricity, and
also lowered the price they are allowed to
charge for the same electricity to their end users.

Wow, we wish someone had hit upon this approach before. Rents too expensive?
Make apartment owners put us
up for free. Medical bills a nuisance? Require doctors and hospitals to work
for nothing.

Almost any inconvenience can, in theory, be solved by passing a law
compelling others to do what we want. If any
state is well situated to make this its comprehensive approach to governing,
it's California -- being a state in close
geographical proximity to North Korea.

Because each year the graduate schools release another class of educated
professionals into the readership, we
probably need to emphasize why the National Lampoon solution wouldn't work:
Lowering the price of electricity
creates an incentive for consumers to consume more. At the same time,
lowering the price creates an incentive for
producers to produce less.

Now, for extra credit: Whose idea of a solution is this?

California's politicians, most notably State Sen. Steve Peace, have
calculated, undoubtedly to a pointillistic degree,
that any blame for blackouts will naturally accrue first to the utilities --
because a blackout is an urgent problem
demanding an urgent solution. Meanwhile, higher prices are something
consumers can resent at their leisure, even
unto November, and thus would be more likely to take out on elected
officials.

Electricity makes an interesting challenge for deregulators, one we've been
fumbling heroically. Electricity cannot be
stored, except at ridiculous expense. Ever try to run your house on
batteries?

A second quality is that demand is highly variable, fluctuating by 100% in a
day, and often nearly as much
seasonally (as measured peak to peak). To meet the highest demand, a utility
might easily find itself having to keep
an entire generating facility on hand that it would only fire up a couple
times a year. A peak plant -- the one that
stands between customers and a blackout -- runs only about 200 hours
annually. That's a large capital good that
sits idle 357 days out of 365.

A third quality is that electricity doesn't travel well over long distances,
though technologists are working on this.
But thanks to the efforts of the New Yorker and other publications scaring
people about the unproven health risks of
power lines, try building a new set of lines across anybody's neighborhood
anyway.

These are all reasons why, in the past, it was deemed efficient to produce
and distribute power within one company
over a large geographic area.

"Monopoly" is a bad word when used by a newspaper but not when used by an
economist. It wasn't monopoly that
led utilities to build expensive nuclear plants in the 1970s and 1980s. It
was "cost-plus" rate regulation. In other
words, any utility, as long as it could get a regulator's approval, was
guaranteed to collect its construction costs
and an operating profit on any plant it built.

Is this a good way to encourage the building of expensive power plants,
enough so that there would always be
sufficient power to go around even on peak days? Yes.

Result: To this day we have a system that in no way induces consumers to be
rational in their usage. Looking
around, your columnist right now is running a fan, two computers and umpty
lights, most of which he could turn off
with no impact on his comfort and productivity. In fact, the stereo has been
switched on but turned down to zero
since last Friday. But why get off the couch to shut it off?

The sensitive, new age solution: Reward utilities not for how much they
invest in construction but how efficiently
they meet demand -- which, in the first instance, would mean incentives for
consumers to rationalize their usage.

The rough-and-ready solution: Free utilities to sock their customers with
whatever prices they want, and let
customers fight back by turning off lights or seeking out alternatives (which
exist aplenty if you look hard enough).

But California and other states have opted for a bonehead-with-a-drawing
board solution: They call it deregulation but
the scheme seems to have been designed with the idea that consumers still
shouldn't know how much electricity
costs from one moment to the next.

Utilities were more or less forcibly stripped of their generation role: Now
they would be middlemen, buying power on
the open market. The problems with this approach range from a shortage of
transmission capacity to the greatly
magnified difficulty of preventing grid overloads and other nasty physical
effects when the generating plants and the
grid aren't under the same control.

Even under deregulation, of course, utilities still have an obligation to
meet peak demand. But, effectively, it's farmed
out to the market, and if the power isn't there, it isn't there. And
California has made sure it won't be there in the
future by slamming down price controls.

Maybe it's time we retired the word "market" altogether from the policy
debate, since it's become one of those
conjuring words that justifies everything and has ceased to mean anything. A
modern economy creates or negates
markets as it needs to: The real underpinning is property rights and freedom
of contract. Would we tell GM to stop
making engines and buy them on the open market? No, because we assume that GM
has every incentive to make
the most efficient decision itself. Yet government planners have decided,
based on no evidence, that the age-old
vertical efficiencies in the electricity business simply don't exist.

By whatever route, California's solution is to allow utilities with the skill
and experience to run integrated power
distribution networks to get on with the job -- without either the old
guarantees or the old heavy-handed restrictions
on their freedom to price. Utilities can judge for themselves how much of
their demand to contract out to
independent suppliers.

Undoubtedly there would be a need for residual regulation to protect the most
vulnerable consumers and make sure
universal service is available to all. But that would be far less intrusive
than the "deregulation" they've been
practicing in California -- and that's now unraveling in California,
discrediting the idea of a more market-based
electrical system.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.


Sorry, its for the August 2000 production.
---------------------- Forwarded by Marlo C James/HOU/ECT on 04/18/2001 03:09
PM ---------------------------

Marlo C James
04/18/2001 03:05 PM
To: Cora Pendergrass/Corp/Enron@ENRON, Patrice L Mims/HOU/ECT@ECT
cc: Sherry Anastas/HOU/ECT@ECT
Subject: NIGS #351901

There is an interconnect problem on NIGS/NICOR deal #351901.  Unify is only
showing the purchase from Enron Energy Services at point name NIG/NGPL
Central Point.  The deal shows for 1,458 mmbtu.  The sales to the transaction
is missing.  Could you please look into this and let me know as I am trying
to get this cleared.

Thanks,
Marlo
Ext. 3-4707


January 22, 2002

TEXAS EASTERN TRANSMISSION (TE) was not required to restrict for Gas Day
January 23, 2002, however, the system is scheduled to capacity in the
ETX and M1-24 Inch zones. No intra-day nominations for gas leaving these
zones or for additional physical supply will be accepted.

Please contact your Operations Account Manager if you have any
questions.

*******************************************************************

NOTE:

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call me. jeff.  415.782.7822.


I have a question on the generation number we are pulling from your
database.  The hydro numbers are coming in positive and negative.  Could you
please explain the difference there when you get a chance.  Thanks for your
help.

Matt Lenhart


Brad,

(see message below from Melba)

Which one should we use, and how should it look on the website?  Remember,
only five characters will fit in the name.  Maybe just CNGNo?
Let me know and i'll forward to Melba.

Fletch

---------------------- Forwarded by Fletcher J Sturm/HOU/ECT on 09/07/2000
06:54 AM ---------------------------

From:  Melba Lozano
  09/06/2000 05:42 PM

To: Fletcher J Sturm/HOU/ECT@ECT
cc: Dale Neuner/HOU/ECT@ECT
Subject: Re: US Gas Ticker

Fletch,

US Gas Daily GD/D CNGAp-HHub - has two prices on Gas Daily .  North and South.

How do you want to difirenciate one from the other? Please let me know.

Thank you,

Melba

To: Melba Lozano/HOU/ECT@ECT
cc:
Subject: Re: US Gas Ticker

these looks good to me except for the lower case "h" in the Hub phys that we
already talked about.

fletch


Hello, my friend Jay W.

I just wanted to say what a great day I am having.  I
am at peace with my surroundings and getting up to go
to work is the highlight of every day, because it
interrupts the nagging sleep that cuts into work time.
I have a constant smile and my cheerfullness is
rubbing off on others.  We are all a happy family.  I
am sure that your life is the same.  I hope that I can
live to be 200 years old and that I am allowed to work
that long, because every second at the office is an
eternity of serene enlightenment.

God Bless you, friend, and peace be with you.

-andy

__________________________________________________
Get personalized email addresses from Yahoo! Mail - only $35
a year!  http://personal.mail.yahoo.com/


Here are first Devon numbers for Nov.  Will advise you for changes.

Bev
---------------------- Forwarded by Beverly Beaty/HOU/ECT on 10/20/2000 03:26
PM ---------------------------

	Enron Capital & Trade Resources Corp.

	From:  "Steve Holmes" <Steve.Holmes@dvn.com>
10/20/2000 02:49 PM

To: <Beverly.Beaty@enron.com>
cc: "Cynthia Cantrell" <Cynthia.Cantrell@dvn.com>
Subject: November Availabilities

Attached are the estimated availabilities for Devon Energy Production
Company, L.C.  I will pass along any revised numbers as we receive them.
Please let me know of any questions you may have.

Thanks,
Steve

 - EnronAvails1100.xls


Bill doesn't get there until Friday eve. so no golf and I had assumed he
would be with Amanda on Saturday.

We may miss out on tea.  Any idea what the hours are?  We won't be done with
golf on Friday until 4:30 or 5:00.  You won't be finished with your nails
until 4:00 or 4:30 on Saturday (and then there's the law school bbq and
Amanda's do).  I don't know the agenda for Sunday's afternoon.


Hello everyone,

	I too am heading back to Boston to work at Harvard Management Company (it's a hedge fund responsible for managing the Harvard endowment). I'll be working on weather derivatives and supporting the rest of their commodities portfolio. Before you rush off to call your broker and short HMC, I have to tell you, DON'T BOTHER! (I already tried it.) It turns out HMC is not publicly traded.

	A recent Harvard Business School paper blamed Enron's downfall on loss of core competency due to wacky digressions such as broadband, pulp, and, ahem, weather derivatives. Having thus helped to bring about the largest bankruptcy in US history, it is now time to wreak havoc elsewhere. Be afraid, be very afraid.  My e-mail at Harvard will almost certainly be hrgovcicj@hmc.harvard.edu . Please keep in touch -- when CD #3 finally gets mixed and printed and the HR tour bus roars into Houston again (Enron, Harvard, whatever -- they're just day jobs, after all) I'll need to have your updated contacts for the mailing list.

Wish me luck,

Joe

-----Original Message-----


Phillip ... I have a new cell phone number: 334-332-6639.  That's one more
option when you find me next week.

See you then,

sam


We have received the executed Master Power Purchase & Sale Agreement from the
referenced CP dated 11/22/2000.  Copies will be distributed to legal and
credit.

This is an EEI Agreement.