Europe seen shrugging off California power crisis- Reuters- Enron ,
 Not a bad wire story - relevant for our conference call later today. Reuters 
in London called me at breakfast yesterday, then Mark gave them some on the 
record comments later. See quote. I had pointed them at lessons to be learnt 
in relation to Spain and Netherlands, and you will see there are a couple of 
mentions of those countries (though only in context of interconnection 
capacity) towards the end of the piece. I think other relevant lessons would 
be related to perils of allowing retail and wholesale (esp. pools for 
residual capacity) markets to be divorced in regulatory terms one from the 
other. Difference from California, however, is that the divorce in Spain and 
Netherlands works currently to detriment of new entrants and to the benefit 
of vertically integrated incumbents. 

---------------------- Forwarded by Peter Styles/LON/ECT on 01/12/2001 10:59 
AM ---------------------------


Iona Maclean
01/12/2001 08:24 AM
To: Jackie Gentle/LON/ECT@ECT, Mark Schroeder/LON/ECT@ECT, Alex 
Parsons/EU/Enron@Enron, Peter Styles/LON/ECT@ECT, John Sherriff/LON/ECT@ECT, 
Michael R Brown/LON/ECT@ECT, Joe Gold/LON/ECT@ECT, Richard Lewis/LON/ECT@ECT, 
Matthew Scrimshaw/LON/ECT@ECT, Mark Palmer/Corp/Enron@ENRON, Julie 
Green/LON/ECT@ECT, Eva Hoeffelman/LON/ECT@ECT, Andrew Morrison/LON/ECT@ECT, 
Fiona Grant/LON/ECT@ECT
cc:  

Subject: Europe seen shrugging off California power crisis- Reuters- Enron 
mention


---------------------- Forwarded by Iona Maclean/LON/ECT on 12/01/2001 07:25 
---------------------------


djcustomclips@djinteractive.com on 11/01/2001 18:14:54
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Subject: Enron Reuters folder: UK:    ANALYSIS-Europe seen shrugging off 
California power crisis.


UK:
ANALYSIS-Europe seen shrugging off California power crisis.
By Stuart Penson

01/11/2001
Reuters English News Service
(C) Reuters Limited 2001.

LONDON, Jan 11 (Reuters) - California's electricity crisis has sent jitters
through the European power industry but the continent, better supplied than
the U.S. state, will continue down the path of liberalisation, analysts said
on Thursday.

"California is definitely going to help us recognise that there are potential
problems in Europe," said Katharina Gassner, power analyst at the UK's Oxford
Economic Research Associates (OXERA).
"But we would certainly expect those problems to be ironed out as
(liberalised) markets evolve in Europe."

Acute power shortages in California have triggered a surge in wholesale
prices, causing the state's two biggest utilities - Pacific Gas & Electric and
Southern California Edison - to run up costs of $12 billion which cannot be
passed on to customers because prices are capped under state law.

The meltdown of California's flawed experiment in power deregulation has
alerted European regulators to the pitfalls of opening up energy markets to
competition.

But analysts say Europe's ample supplies of electricity mean it will make the
switch to competitive markets without the threat of utility bankruptcies and
blackouts now faced by America's richest state.

The European Union's power markets are opening up to competition under a
European Union Directive which came into force in 1999.

California's crisis, which is sending ripples through financial markets and
topping the agenda of U.S. Energy Secretary Bill Richardson, is rooted in a
shortage of power and an apparently unbalanced deregulation model, analysts
say.

Electricity consumption, fuelled by California's high-tech industrial base, is
far outstripping local supply which has not grown significantly for years.

New power projects were a rarity in the 1990s as environmental constraints,
bureaucratic delays and regulatory uncertainty put off investors.

EUROPE HAS POWER SURPLUS

By contrast, most European markets have a significant surplus of power. This
is most evident in Germany, mainland Europe's biggest market, where power
prices crashed after liberalisation in 1998.

"Anyone who assumes what is happening in California is going to happen in
Europe is really not understanding the situation," said Nigel Evans, managing
director in Europe for Energy consulting company Caminus.

"The supply/demand fundamentals in Europe are vastly different to California."

Supply is tighter in Europe's fastest growing markets, like Spain and Ireland.
But unlike in California, there is no shortage of companies prepared to build
new generation.

"I don't think there is any evidence of the system coming under real stress in
any European markets," said David Smol of UK-based consultants Ilex.

"There is lots of new investment on the block."

CALIFORNIA POWER PRICES ROCKET

The Californian price increases, mainly seen on the California Power Exchange,
have been higher than fundamentals justify, said Mark Schroeder, a vice
president of European government and regulatory affairs at U.S. energy group
Enron .

"Prices on the exchange reflect the need to recoup stranded costs rather than
true market fundamentals," he said.

The utilities cannot pass the costs on to retail customers because retail
rates, unlike liberalised wholesale prices, are frozen under state
deregulation laws.

Europe's deregulation plan contains a staggered timetable of market opening
that brings competition ultimately to all consumers, from big industrial
consumers down to private households.

But European liberalisation is not problem free. Transmission bottlenecks are
restricting supply on the borders of France, Spain, Italy and the Netherlands.

Prices in Spain and the Netherlands have been forced higher recently as a
result of constraints on interconnection, much of which is used under
long-term supply deals arranged prior to liberalisation.

"Interconnection is a problem but it's more about freeing up existing capacity
taken up by long term contracts than about building new interconnection," said
Gassner at OXERA.

The development of efficient, free markets across Europe would enable
companies to enter into swaps deals, removing the need for physical
interconnection, Gassner added.



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