Ken needs to be aware of this -- has he had any conversations w/ Bailey?
---------------------- Forwarded by Karen Denne/Corp/Enron on 05/01/2001 
05:22 PM ---------------------------


Susan J Mara
05/01/2001 03:25 PM
To: Mark Palmer/Corp/Enron@ENRON, Richard Shapiro/NA/Enron@Enron, Jeff 
Dasovich/NA/Enron@Enron, Janel Guerrero/Corp/Enron@Enron, Karen 
Denne/Corp/Enron@ENRON, Sandra McCubbin/NA/Enron@Enron, James D 
Steffes/NA/Enron@Enron, Harry Kingerski/NA/Enron@Enron, Paul 
Kaufman/PDX/ECT@ECT
cc:  

Subject: OpED Editorial SacBee Lauding Williams CHairman's New Position 
Favoring Caps

I got this from one of my Williams counterparts.  



 Daniel Weintraub: An energy trader says it's time to limit profits

(Published May 1, 2001) 
In a sea of angry finger-pointing, name-calling and ridicule, Keith Bailey 
stands out as an island of calm, a lonely voice of reason who understands 
that a company's long-term self-interest is about more than how much money it 
can make today. 
Most Californians probably have never heard of Bailey, a Kansas City native 
and chief executive officer of Tulsa-based Williams Cos. -- a private energy 
trader that has profited handsomely from the state's recent miseries. But 
Golden Staters from Gov. Gray Davis on down ought to embrace this Oklahoma 
resident. He might be the man who saves our future. 
Bailey is proposing that federal electricity regulators place temporary caps 
on the profits that he and his competitors may earn between now and fall 
2002, when supply and demand will be closer to balance and sanity might 
return to the West's energy market. 
His rationale is this: To save California's private electricity market, new 
power plants are desperately needed. But not enough of those plants will be 
built if generators are not confident they will be paid for the product they 
already are providing. 
Californians, though, don't want to promise payment without knowing they will 
be able to afford the bill. Short-term caps on profits, Bailey believes, are 
the best way to ease the state's fears, get everybody paid and move on to a 
system that works -- for suppliers and customers. 
"One of the things we are hoping to do with our proposal is create something 
that California can look at and say, 'So long as prices are determined on 
this basis, we're prepared to pay,' " Bailey said in an interview. "This is a 
mechanism that lets the state say, 'We're not signing a blank check. We don't 
know what the price is going to be, but we do know how it will be 
determined.' " 
Bailey's proposal is different from the limited price caps approved last week 
by the Federal Energy Regulatory Commission -- and far better for California. 
The federal caps would come with all sorts of strings attached, would kick in 
only during emergencies and would be focused on prices, not profits. Bailey 
is proposing that all power sold from now through summer 2002 be priced at 
the cost of producing it, plus a profit of 15 percent. That's more than a 
regulated utility would make but less than most private companies seek, and 
far less than electricity providers have been earning of late. 
Cynics might note that Bailey is proposing caps only after his company has 
squeezed all it can from California. The firm reported last week that profits 
doubled in the first quarter of 2001 over a year ago, with pretax income from 
its energy services nearly tripling, to $600 million. Much of the 4,000 
megawatts of electricity that Williams controls in California is already 
committed in long-term contracts -- so Bailey has relatively little to lose 
if what remains can only be sold at controlled prices. 
But here is at least one measure of Bailey's sincerity: His company still is 
owed $252 million for electricity it has provided California. And he's not 
insisting that the debt be paid before his proposed profit caps take effect, 
or even as part of the deal. 
"Clearly there is a past that has to be dealt with," he said. "Whether that 
ultimately gets dealt with in bankruptcy court or negotiations with the 
parties, it will sort itself out one way or another. Perhaps if we find 
prices that work going forward, that could be used as a framework." 
Bailey, an engineer by training, says no one should mistake his proposal for 
a lack of confidence in free markets. He still firmly believes that a 
deregulated energy market would be best for California and the rest of the 
West in the long term. He just wants to make sure there is a long term. 
Bailey is watching, and listening, to California. He hears talk of seizing 
power plants, of turning to a public power system. He describes these ideas 
as Draconian and says they would not solve the problem. But he also knows 
there is a limit to what Californians -- and their elected leaders -- can 
take. 
"I recognize we live in a democracy, and lots of things could happen," he 
said. 
What he is proposing, in effect, is a safety valve. He wants to limit the 
market in order to save it. 
"This is an extraordinary situation," Bailey said. "We need to help create 
some breathing room. ... We all have to work together, and this is the right 
thing to do." 
Bailey's proposal, made at a conference of energy producers and traders in 
Oklahoma last week, was almost lost amid all the focus on the price caps 
approved in Washington. But there is still time to give the idea the 
attention it deserves. Properly nourished, it could be the breakthrough that 
solves this crisis. Davis and others in California should seize the moment. 
Sue Mara
Enron Corp.
Tel: (415) 782-7802
Fax:(415) 782-7854