Interesting ideas on Reliant and Orion asset transfer.

Jim
 -----Original Message-----
From: 	"PennFuture" <pennfuture@pennfuture.org>@ENRON
Sent:	Thursday, November 08, 2001 5:29 PM
To:	Friends of PennFuture
Subject:	PennFuture's E-cubed - When is Bigger Better?

Reminder - the Second Annual Green Power: Turn It On! Awards  Luncheon is on November 15!
REGISTER TODAY!!

using renewable energy?Promotes energy  independence. Ensures a cleaner and healthier future for Pennsylvania. Builds  regional economic development and job creation.

Want to know how? Just ask the executives from IKEA,  CARNEGIE MELLON UNIVERSITY, GIANT EAGLE, PENN STATE, EBARA SOLAR, and the many  other Pennsylvania businesses and institutions that will be honored on November  15th. Join PennFuture and friends as we celebrate the people, businesses and  institutions that are blazing the trail towards a cleaner and healthier  Pennsylvania by purchasing green power, advancing policies that develop the  renewable energy market, and taking the lead in creating new renewable  supply!

November 15, 2001 - 12:00 to 2:00 p.m.
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-------------------------------------------------------------------
November 8, 2001
Vol. 3, No. 21
When is  Bigger Better?
The Acquisition of Orion by Reliant
The  possible acquisition of Orion Power, the owner of many plants that serve the  Pittsburgh area, by Reliant Resources is the fifth major transaction affecting  Pennsylvania's generation and electric service since 1996. Reliant Resources'  attempt to buy Orion Power, however, raises issues not seen before in other  transactions.
Those transactions - the PECO Energy and Unicom merger,  the GPU and First Energy merger, the sale of GPU's power plants, and Duquesne  Light Company's swap of plants with First Energy and subsequent purchase by  Orion - did not increase the market power of a particular generation owner.
Why not? All the other transactions involved companies operating in  different markets, or companies that did not own generation, or sale of power  plants from one company to one or more companies. In fact, taken together these  transactions reduced consumer costs, protected rate caps, and decreased stranded  costs. They also led to important environmental improvements like new pollution  control investments and support for renewable energy.
Reliant Resources,  however, already owns generation within PJM and the purchase of Orion would add  generation to its PJM share, once Duquesne joins PJM West. For this reason, the  transaction should be carefully reviewed and used to formulate a new policy  concerning consolidation of generation assets within a single  market.
Specifically, regulatory bodies should make increased demand  response a condition for any transaction that increases generation consolidation  as demand response strongly mitigates market power. Funds should be devoted to  ensuring that all consumers with a load of 50 kilowatts and above are equipped  with time-of-use meters. This measure is necessary, as the single biggest  regulatory mistake to date in electricity restructuring is the failure to make  demand response a central part of restructuring. Without it, workably  competitive markets will not develop or be sustained.
Apart from  increasing demand response, regulators and the Office of Consumer Advocate  should get answers to the following questions:
- Will Reliant Resources  permit Duquesne Light Company, the local distribution utility, to offer in its  service territory a competitive default service (CDS) program modeled after the  successful CDS program operating in the PECO Energy service territory?
-  Will Reliant Resources exercise market power within local markets and should  particular plants be excluded from this acquisition to eliminate market power?
- Will Reliant Resources commit to supporting economic demand-response  programs within PJM, instead of voting against demand response as it has done  recently?
- Will Reliant Resources acquisition help finance installation of  time-of-use meters for all customers with demand more than 50 kilowatts within  the Duquesne control area?
- What will Reliant Resources do to clean up some  of the heavily polluting plants that it owns now or will acquire from Orion?
Reliant owns portions of Keystone and Conemaugh and Shawville power  plants. It would buy from Orion the Cheswick unit. Keystone and Cheswick have no  scrubbers installed to reduce sulfur dioxide emissions, while Shawville has been  scrubbing one out of four boilers. In 2000, Keystone, Shawville and Cheswick  respectively released 153,490 tons, 48,243 tons, and 44,908 tons of SOx into  Pennsylvania's air. Keystone is also the biggest emitter of mercury in the  entire country and all four plants spew huge amounts of nitrogen oxide - at a  rate more than double the modern standard of .15 lbs/mmbtu. That's not all - all  four plants produce an amazing 30 million tons of carbon dioxide, helping  Pennsylvania to contribute 1 percent of the entire world's human-induced global  warming gases.
Reliant can begin cleaning up by implementing in the  Duquesne area the equivalent of the PECO Service Territory's CDS program, which  includes a Renewable Portfolio Standard that increases annually the amount of  renewable energy that must be supplied to customers. CDS customers there are  served by New Power and Green Mountain Energy at 5.56 cents per kilowatt-hour  (kWh), more than three cents less than the 8.65 cents per kWh PECO Energy  charged its residential customers in 1996 for coal and nuclear power.
Market Power Issues
In addition to environmental  issues, market power issues must be examined. Such an inquiry hinges on defining  the relevant market and products.
Nationally, total generation capacity  is approximately 800,000 MW, with most of it subject to base rate regulation in  the retail market. Despite regulation at retail, wholesale generation  transactions are generally price deregulated in all 50 states, whether or not  the entities engaged in the transactions are deregulated generation owners,  regulated public utilities, municipal utilities, or electric cooperatives and  whether or not necessary market institutions required for workably competitive  markets exist.
Orion Power has been participating in the deregulated  wholesale market. It owns 81 power plants in New York, Pennsylvania, Ohio, and  West Virginia, producing approximately 6,000 MW and has another 5,000 MW under  construction. Orion has done an exceptional job, improving the forced outage  rates, especially among its New York City resources.
The proposed  acquisition of Orion Power by Reliant Resources will form the nation's second  largest deregulated power generation owner, controlling 17,279 MW, or 6.15  percent of the deregulated generation market that totals 281,000 MW of the  country's total capacity. Reliant Resources has a smaller share of the nation's  total generation capacity.
Yet these small national shares do not  guarantee that Reliant Resources could not have market power in portions of the  PJM Market.
Prior to this proposed acquisition, Reliant Resources owned  about 7 percent of total PJM generation, or 4,262 MW of generation capacity  within the 58,000-MW PJM market. These facilities include 2,009 MW of base load,  803 MW of intermediate load, and 1,450 MW of peaking capacity. They are quite  old and formerly owned by GPU and Sithe (see table in attached document).  Reliant Resources is also developing another 1,316 MW within PJM.
These  numbers would indicate that regulators should focus on possible market power  within the Duquesne Control Area of the units that Reliant Energy is purchasing  from Orion. The Duquesne Control area is scheduled to become part of PJM West in  2002, but regulators and the Office of Consumer Advocate should ensure that no  plant is strategically located within the transmission system so that it  possesses market power even after incorporation of the control area within PJM  West. If any plants that would give Reliant Resources market power are  identified, they should be removed from this acquisition.
Addressing Market Power
The combination of large  generation owners creates concerns over market power that can only be identified  and addressed by sound regulatory action. In all three of the Northeastern ISOs,  there have been incidents of market power which have resulted in numerous rule  changes. There are several reasons that the electric industry is sensitive to  market power. First is the inability to store energy. In many other industries  surpluses can be built up in low demand periods and used to fill in gaps during  high demand periods. In the electric industry, energy is produced and consumed  virtually instantaneously. Second, there are barriers to entry in the electric  industry, including discriminatory interconnection practices and other incumbent  advantages. Third, historically the demand for electricity has been inelastic  and creates the opportunity for inflated prices. Inelastic electricity demand is  not surprising when most customers see average prices and do not have metering  or the ability to respond to prices.
For these reasons, concrete steps to  combat market power in the electric industry must be taken. For starters, the  existing market mitigation measures, such as PJM's $1,000 price cap, should be  examined to determine if they are sufficient, while not being burdensome as to  limit new generation resources from entering the market.
Secondly,  barriers to entry should be reduced, especially for distributed generation and  environmentally beneficial grid technologies like wind energy.
Lastly  and most importantly, demand-response programs can and must be developed.  California has shown that energy efficiency can preserve reliability and break  the market power of generation owners. Changing the demand for electricity is  the biggest and best protection against market power.
A Deeply  Troubling Tale
Unfortunately, Reliant Resources did not support  PJM's Economic Demand Response programs, voting against them last year in the  Members Committee. It had company, with all generation owners voting as a block,  with one exception, against demand response. Three cheers for the exception:  Edison Mission.
In the face of the mass opposition of generation owners,  PJM wobbled but did not cave. It changed but submitted demand-response programs  to FERC which were approved for the summer of 2001.
The moral of this  tale is that the public interest needs regulators, the PJM Board, and other  interested parties to further demand-response initiatives, because generation  owners will likely be roadblocks. In particular, real-time metering, residential  air conditioning and heating programs, and wholesale markets all need to be  developed.
It is time for strong action on these points. Regulators must  begin by requiring Reliant Resources to finance the installation of time-of-use  meters for all customers with demand of 50 kW or more within the Duquesne  control area. This is especially important as the transition there may be  completed by 2004.

-------------------------------------------------------------------
Our events calendar is full at PennFuture! Our Global Warming  Conference is coming up on November 9 in Camp Hill, and our Green Power Awards  Luncheon is on November 15 in Pittsburgh.

Election 2001: The Calm Before the Storm luncheon program is  on December 3 at 11:30 a.m. at the Harrisburg Hilton, followed by an open house  in our Harrisburg office. For more information on any of our events or to  register, please visit our website at www.pennfuture.org  and click on  Events/Campaigns.
We hope to see you at one of our upcoming  events!
-------------------------------------------------------------------
E-Cubed is available for reprint in newspapers and other  publications. Authors are available for print or broadcast.

PennFuture (www.pennfuture.org ), with offices in Harrisburg,  Philadelphia and Pittsburgh, is a statewide public interest membership  organization, which advances policies to protect and improve the state's  environment and economy. PennFuture's activities include litigating cases before  regulatory bodies and in local, state and federal courts, advocating and  advancing legislative action on a state and federal level, public education and  assisting citizens in public advocacy.

To unsubscribe, simply reply to this email with "unsubscribe"  in the subject.
 - vol3no21_110801.doc


You can only pick up players for the upcoming sunday's game through the
bidding process.  No pick ups will be allowed after wednesday on any given
week.


I've received a copy of the powerpoint presentation Hertzberg made to the his
caucus.  Unfortunately, it's a fax and hardly legible.  I can make out,
however, that it is the core/noncore plan.  I'm attempting to get a better
copy and will distribute as soon as I get my hands on it.  Please keep
confidential that we have a copy.  Thanks.

Best,
Jeff


fyi
-----Original Message-----
From: Howard, Kevin A.
Sent: Wednesday, February 13, 2002 3:21 PM
To: Harris, Steven; Hayslett, Rod
Subject: FW: spread option model
Importance: High

In response to item number 1on your previous email. Please reference distribution list.  In addition, a sensitivity analysis was emailed to you as well.
-----Original Message-----
From: Thames, Davis
Sent: Friday, February 08, 2002 3:44 PM
To: Howard, Kevin A.; Hayslett, Rod; Geaccone, Tracy; Harris, Steven; Ratner, Michael; Donoho, Lindy
Subject: spread option model
Importance: High

Please see attached summary sheet.  The intrinsic value is the value of the basin spread, and the extrinsic is the volatility (time) value.  The correlation being assumed minimizes extrinsic value, so we are only looking at the value of the spread from 2006 onward.

Results are that the basin curves impley over $2bb in continuing value past '06.  Assuming $550 in debt, that provides a PV equity value of $1.45bb.  Add to that the PV of the current contracts, approx $400mm, and you've got a total equity value of approximately $1.85bb.  This is reasonably consistent with the model if we adjust it to include max rates (as the basin curve valuation suggests you should do).

Best-
Davis


Kay,

I told Fred I would look at this tomorrow morning and see if I could made the
changes for you.

K-

Kay Mann
01/02/2001 04:53 PM
To: Kathleen Carnahan/NA/Enron@Enron
cc:

Subject: RE: Draft CA - NRG Development Co.

fyi.  I haven't checked yet.
---------------------- Forwarded by Kay Mann/Corp/Enron on 01/02/2001 04:52
PM ---------------------------

	From:  Chris Booth                           01/02/2001 04:43 PM

To: Kay Mann/Corp/Enron@Enron
cc:

Subject: RE: Draft CA - NRG Development Co.

---------------------- Forwarded by Chris Booth/NA/Enron on 01/02/2001 04:40
PM ---------------------------

"Magie, Scott" <Scott.Magie@nrgenergy.com> on 01/02/2001 04:35:41 PM
To: "'Fred.Mitro@enron.com'" <Fred.Mitro@enron.com>
cc: Ben.Jacoby@enron.com, Chris.Booth@enron.com

Subject: RE: Draft CA - NRG Development Co.

Take a look at the redlined changes.  SCOTT

-----Original Message-----
From: Fred.Mitro@enron.com [mailto:Fred.Mitro@enron.com]
Sent: Friday, December 22, 2000 3:37 PM
To: scott.magie@nrgenergy.com
Cc: Ben.Jacoby@enron.com; Chris.Booth@enron.com
Subject: Draft CA - NRG Development Co.

Scott:

Please find attached a draft CA between Enron North America and NRG
Development Co., Inc. per our discussions on power plant project
opportunities.

Please review and provide me with your comments/proposed changes.  If this
form is acceptable, please have it signed by an appropriate representative
of NRG Development Co., Inc. and fax to me at (713) 646-3037.  I will then
forward you two signed originals for NRG's execution.

If you have any questions or wish to discuss, please contact me at (713)
853-5406.  I will be out of the office next week but can be reached by cell
phone at (713) 412-4612.  Please leave a voice message on my cell phone and
I will respond as soon as possible.

Best wishes for a safe and happy holiday season.

Regards,
Fred Mitro

(See attached file: NRGdevelopment CA 122200DOC.DOC)

 - NRGdevelopment CA 122200DOC.DOC


Dear Jeff,

For decades, reformers have promised to improve the public schools,
but recent newspaper headlines show that many schools have gotten
worse:

* "Threshold lowered on exit exams -- State OKs high school
standard below what was originally proposed"
* "'Abysmal' exit test results for 9th-graders -- Most flunk if 70%
is a passing grade"
* "Small wars plague the schools -- Teachers, district, mayor embroiled"
* "Schools Add Security in Reaction to Violence"

Why have efforts to improve the public school system been such
failures? Which reforms are more likely to overcome the political
obstacles to improve education? Which reforms best ensure that
schools will be held accountable to parents? Which reform proposals
have the greatest potential for fostering educational excellence?

To explore these and related question, the Independent Policy Forum
will feature two noted education experts: Richard Vedder (author, CAN
TEACHERS OWN THEIR OWN SCHOOLS?) and John Merrifield (author, THE
SCHOOL CHOICE WARS). The program will be held the evening of
Thursday, July 5th, from 6:30 to 8:30 p.m., at the Independent
Institute's conference center in Oakland, California.

For your review, I am adding below an invitation with further details
on the program. Because seating is limited, please make your
reservations as soon as possible.  For further information, please
contact me or the Institute's Events Coordinator, Ms. Nichelle
Beardsley, at 510-632-1366 x118.

We hope to see you on July 5th.

Sincerely,

David J. Theroux
Founder and President
The Independent Institute
100 Swan Way
Oakland, CA 95621-1428
510-632-1366 Phone
510-568-6040 Fax
DTheroux@independent.org
http://www.independent.org

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

WHY ARE THE PUBLIC SCHOOLS FAILING AND WHAT CAN BE DONE? - Next
Independent Policy Forum (July 5, 2001)

American children learn less than they did 30 years ago, and even
where there are signs of improvement, they are small. Many high
school graduates -- 90 percent of whom attended government-operated
public schools -- lack the skills needed in today's
knowledge-intensive workplace. Further, many students fail to
graduate. (The dropout rate in California is 32 percent overall, and
45 percent for immigrants.) Parents and educators have long
recognized the shortcomings of the public school system, but their
efforts to reform it have failed. Are school vouchers and charter
schools the answer? What about teacher-owned schools? What other
reforms might make schools more innovative and accountable to
parents? Please join us as education experts RICHARD VEDDER and JOHN
MERRIFIELD examine new strategies for achieving educational
excellence.

SPEAKERS:

-- RICHARD VEDDER, Senior Fellow, The Independent Institute;
Professor of Economics, Ohio University; author, CAN TEACHERS OWN
THEIR OWN SCHOOLS?

-- JOHN MERRIFIELD, Senior Research Associate; The Education Policy
Institute; Professor of Economics, University of Texas, San Antonio;
author, THE SCHOOL CHOICE WARS

WHEN:
Thursday, July 5, 2001
Reception and book signing: 6:30 p.m.
Program: 7:00 - 8:30 p.m.

WHERE:
The Independent Institute Conference Center
100 Swan Way
Oakland, CA 94621-1428
For a map and directions, see
http://www.independent.org/tii/tii_info/about.html#map

TICKETS: $30.00 per person: includes one copy of Richard Vedder's
book, CAN TEACHERS OWN THEIR OWN SCHOOLS?, OR John Merrifield's book,
THE SCHOOL CHOICE WARS, OR admission without a book is $10 per person
($7 for Independent Institute Associate Members)

Praise for Richard Vedder's book, CAN TEACHERS OWN THEIR OWN SCHOOLS?

"Vedder suggests for-profit schools owned and operated by teachers
and school administrators would offer a promising alternative to the
present public school system."
-- SCHOOL REFORM NEWS

"Nobody yet has found a foolproof formula for revitalizing American
K-12 education. So let's be humble enough -- and empirical enough --
to try as many tantalizing approaches as we can. In that spirit, I
commend Richard Vedder's pioneering ideas."
-- CHESTER E. FINN, JR., former Assistant Secretary, U.S.
Department of Education

For more information about CAN TEACHERS OWN THEIR OWN SCHOOLS?
see http://independent.org/tii/catalog_pr/policy_schools.html.

Praise for John Merrifield's book, THE SCHOOL CHOICE WARS

"Professor Merrifield asks this question: what is meant by and what
is the intended consequence of reforms bearing such labels as
vouchers, school choice, charter schools, privatization, and
competition? This book brilliantly and clearly exposes the
superficiality and extraordinary fuzziness of those labels."
-- SEYMOUR B. SARASON, author, CHARTER SCHOOLS: Another Flawed
Educational Reform?

For more about this event, see
http://www.independent.org/tii/forums/010705ipf.html.