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Date: Mon, 23 Jul 2001 12:09:24 -0700 (PDT)
From: kristin.walsh@enron.com
To: m..presto@enron.com, k..allen@enron.com
Subject: Western Issues 7/23/01
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Below is the weekly western issues update sent to Tim earlier.  If you have=
 any questions, please feel free to Kristin Walsh (x39510).

EXECUTIVE SUMMARY
FERC Multi-Party Refund Negotiations
BPA Financials & Smelter Agreements
BC Hydro Rate Freeze

Power Refunds
The big event that happened last week in Washington DC, in regards to Calif=
ornia and the rest of the Western energy markets, was that multi-party nego=
tiations that flopped - apparently the difference between $8.9 billion and =
$703.6 million between parties could not be settled.  Below is a rough brea=
kdown corporate offerings:

Williams, Duke, Reliant, Dynegy, & Mirant: =09 =09 $510 million combined
PowerEx (BC Hydro):=09=09=09        =09 $125 million
15 Power Marketers including Enron:=09=09 $49.6 million
7 California Municipal Utilities:=09=09=09 $6.5 million
Load-serving entities outside CA:=09=09=09 $12.5 million

Northwest utilities submitted their calculations of overcharges, however, J=
udge Curtis Wagner has virtually ignored Northwest claims of $611 million i=
n overcharges, stating "There was little time to address the issues raised =
by the Pacific Northwest parties.  They did not have data on what they are =
owed, nor an amount of refunds due them."  Contrary to the judge's claim, a=
 number of Northwest utilities did submit claim amounts at the settlement c=
onference, although the problem is each utility has its own methodology for=
 calculating these amounts.  Wagner was probably frustrated that there was =
no standard methodology for these calculations and appears to be leaning ag=
ainst giving NW utilities the same fast-track status as California.  FERC h=
ad originally not even wanted to consider NW claims in this conference unti=
l a group of NW senators got together and applied some pressure - the resul=
t was there was not much time to get the overcharge data together.  Below i=
s another rough breakdown of the claims:
PacificCorp:=09=09$6.7 million
Snohomish PUD:=09=09$229 million
Tacoma Power:=09=09$71.9 million
Seattle City Light:=09=09$222 million
Port of Seattle:=09=09$11.1 million
BPA:=09=09=09$70 million*

BPA
BPA Borrowing:  Sen. Patty Murray (D-WA) has been leading the fight for BPA=
's request of $2B in additional borrowing authority and was pleased the Sen=
ate voted to increase access to additional funds, however,  Sen. Murray has=
 promised to fight the re-authorization caveat. Murray's spokesman said the=
 Committee may have been concerned about 'bumping up against spending caps'=
 when it added the mandate for annual re-authorization.  Bonneville has war=
ned it could exhaust its borrowing authority by the end of 2003 unless the =
amount was boosted from the current limit of $3.75 billion -- the increase =
got through the Senate Energy & Water Development Subcommittee, but had the=
 caveat added when it reached the full Appropriations Committee.  Increased=
 borrowing authority would be used to update transmission infrastructure, r=
etrofit Columbia River hydropower projects to boost efficiency and continue=
 conservation programs.  We can expect to see more action coming out of Sen=
. Murray's office.
Refunds:  Recent media reports have hinted to the possibility of Northwest =
utilities (including BPA) seeking refunds for the overpriced power Californ=
ia is currently fighting. This information seems supported by fears that ea=
rlier settlements reached between Northwest utilities and California State =
may be challenged by bankruptcy proceedings.  If a bankruptcy court were to=
 issue a ruling that significantly altered agreements between BPA and PG&E =
(& potentially bankrupt SoCal. Ed.), it is possible that BPA could press a =
refund request in the range of $70M to $100M.  However, while BPA's refund =
request may be an option to stabilize their finances, they are also careful=
 about voicing their opinion because of the $167 million in gross sales the=
y made from California
BPA Administration:  The Bush Administration reportedly has no current plan=
s to replace the BPA's administrator.  The entire Northwest delegation (Dem=
ocrats and Republicans from the BPA region) has asked that he be made the f=
ull-time administrator.  However, since many of the decision-makers at DOE =
are conservative Republicans, they're not comfortable with him because he i=
s a Democrat.  At this time, DOE people are unsure of how to handle this ma=
tter and appear to be in a state of limbo.
DSI/Aluminum Smelter - Load Reduction Agreements:  BPA is in the hot seat r=
ight now, realizing that falling electricity prices is making it possible f=
or smelters under load reduction agreements to begin shopping around for ot=
her sources.  Few believe that these current market prices will be sustaina=
ble, considering the fact that the West will see a significant supply incre=
ase within the next year.  Consequently, DSI's will be very concerned about=
 signing long term price contracts given the current downward pressure on p=
rices (which are still historically very high, but dropping).  Currently, t=
here are two Northwest smelters seeking to restart plant operations.   Alco=
a is in preliminary talks with BC Hydro to secure additional power to resta=
rt its Intalco smelter, and Kaiser, free from the money and the constraints=
 of a load-reduction agreement, is also attempting to restart plants.  We w=
ill continuing monitoring of this situation and will update as the story de=
velops.
=20
BC HYDRO
Rate Freeze:  The current rate freeze was imposed by the former NDP governm=
ent, and it ends 30 September 2001.  It is up to the government to direct t=
he BCUC to lift the rate freeze, and before it can do that, it has to sched=
ule a rate hearing and decide to put the utility back under the BCUC's purv=
iew.  It has been a number of years since there was a rate hearing, and peo=
ple are not looking forward to it because it begs all sorts of questions ab=
out overall energy policy.  A rate hearing will be delayed until the new go=
vernment has completed its administrative "core review" and decided on a br=
oader energy policy, including its goals for BC Hydro.  Lifting the rate fr=
eeze partly depends on how much regulators believe should be held in the ra=
te stabilization account - this money has been redirected elsewhere over th=
e past few years, leaving the utility unprepared for the sort of low-water =
conditions that have surfaced this year.  BC Hydro wants the freeze lifted,=
 and the new government will have an ideological bias against continuing th=
e rate freeze given that it was put in place by the NDP and flouts free ent=
erprise principles.  This suggests the rate freeze is on the way out, but i=
t may persist beyond the original 30 September deadline for the reasons out=
lined above. How long it persists depends on how long it takes the new gove=
rnment to complete the core review.=20
