In case you haven't seen this..
---------------------- Forwarded by Susan J Mara/SFO/EES on 10/09/2000 04:42 
PM ---------------------------


"Ronald Carroll" <rcarroll@bracepatt.com> on 10/09/2000 11:39:18 AM
To: <Mary.Hain@enron.com>
cc: <smara@enron.com> 
Subject: Re: Mkt Manipulation Caused Calif Pwr Crisis - State Senator Peace


Mary,  I believe FERC is closed  today b/c of Columbus Day, so we'll get the 
letter first thing tomorrow.  (I am working at home today b/c of Yom Kippur.)

I should be able to send you my pleading related to the White Paper 
tomorrow.  I was pleased to note that, according to the Dow Jones article, 
FERC will not issue its report in December (if true).  This should allow us 
time to file the White Paper and have it be considered before any final 
decisions are made (assuming that FERC would be willing to consider it in any 
event).  We need to get better intelligence on the status of Staff's 
investigation.

Also, I will call you tomorrow to talk about a response to CMUA's complaint 
requesting the reimposition of cost based rates.  While many of our earlier 
arguments would be relevant here, this seems to present new (and more 
dangerous) issues.

Ron

>>> <Mary.Hain@enron.com> 10/09/00 11:52AM >>>


Ron - Please get this letter.




 (Embedded     Enron Capital & Trade Resources Corp.
 image moved
 to file:      From:  "Ronald Carroll"
 pic27506.pcx) <rcarroll@bracepatt.com>
               10/09/2000 08:16 AM






To:   <mary.hain@enron.com>, <smara@enron.com>, <snovose@enron.com>,
      <seabron.adamson@frontier-economics.com>, <cfi1@tca-us.com>
cc:
Subject:  Mkt Manipulation Caused Calif Pwr Crisis - State Senator Peace


DJ Mkt Manipulation Caused Calif Pwr Crisis - State Senator
Copyright , 2000 Dow Jones & Company, Inc.



LOS ANGELES (Dow Jones)--California's power costs surged this summer, not
because of a supply shortage, but because power suppliers were able
withhold generation until the last possible moment and command
"exorbitantly" high prices, State Sen. Steve Peace said in a letter sent to
federal regulators.

In the letter dated Oct. 3 and obtained by Dow Jones Newswires, the
senator, one of the architects of deregulation in the state, charges that
the state's power market was "collusively structured" and pleads with
federal regulators to take action against instate generation owners for
"unlawful" behavior.

     Peace, D-Chula Vista, compared the state's power market to a World
Wrestling Federation match, saying it only had the appearance of
competition.

     "A WWF bout has all of the surface elements associated with
competition, but the outcome is driven by a script rather than by the
spontaneous consequences of competition," Peace says in the letter to
Federal Energy Regulatory Chairman James Hoecker. "Similarly, participants
in the wholesale electric market are not responding to market signals, they
are simply following a script written... to satisfy the most naive and
simplistic believers in markets."

     The federal agency is expected to release its findings on the causes
of the state's power crisis by December. State energy officials are
conducting their own investigation of the summer's events, in which
wholesale power prices spiked to record levels and power bills for San
Diego customers tripled.

     Peace wants FERC to order generators to repay hundreds of millions of
dollars in power costs to California's retail electricity consumers and
three-investor owned utilities.

     State's Pwr Grid Operator Says Demand Outstripped Supply



     Peace's claim that California didn't have an electricity supply
problem this summer contradicts a report by the California Independent
System Operator, the state's grid operator, which concluded that demand did
outstrip supply.

     "These guys aren't in the control room," ISO spokesman Patrick
Dorinson said of doubters in a previous interview. "How would they know?"

     If FERC uncovers evidence that California indeed faced no supply
shortage this summer, the result could be severe penalties for all market
participants, a FERC spokeswoman said.

     The senator offered no such evidence in his letter, but said, "In
every case and in every declared emergency, supplies have been adequate to
meet load."

     A conclusion that supply was short would leave FERC with little
alternative but to return the market to cost-based rates until the supply
shortage is corrected, the senator wrote.

     The senator urged FERC not to conclude that the problems in the
wholesale market would best be solved by eliminating the state's main power
market, the CalPX, and moving to exclusively bilateral trade.

     "Such a result would be disastrous," Peace's letter states. "The
commission should keep in mind those who have manipulated the wholesale
market are those who would prefer that all transactions be engaged in
secret."

     But the senator did ask that the stakeholder boards of the CalPX and
the ISO be replaced. In addition, the senator is reportedly drafting
legislation that would fold the CalPX into the ISO and may result in the
closure of the CalPX's Alhambra trading floor, sources close to the senator
said.

     CalPX spokesman Jesus Arredondo said the nonprofit exchange is
operating exactly as the Legislature intended and that any overhaul would
need the approval of the governor.

     The California Municipal Utilities Association, a lobbying group
representing the interests of about 30 municipal utilities in the state,
filed a petition at FERC Wednesday seeking a temporary return to regulation
in the form of cost-based rates. Pacific Gas & Electric Co. and Southern
California Edison also plan on making similar filings with federal
regulators by the end of the month.

     -By Jason Leopold, Dow Jones Newswires; 323-658-3874;
mailto:jason.leopold@dowjones.com

     (MORE) Dow Jones Newswires 06-10-00

     2115GMT