From: douglass@arterhadden.com
To: barbara_klemstine@apsc.com, bob_anderson@apses.com, dcazalet@apx.com, billr@calpine.com, jackp@calpine.com, glwaas@calpx.com, ken_czarnecki@calpx.com, cabaker@duke-energy.com, rjhickok@duke-energy.com, gtbl@dynegy.com, kewh@dynegy.com, rpelote@energy.twc.com, jdasovic@enron.com, susan_j_mara@enron.com, curt.hatton@gen.pge.com, foothill@lmi.net, camiessn@newwestenergy.com, jcgardin@newwestenergy.com, rsnichol@newwestenergy.com, rllamkin@seiworldwide.com, cfi1@tca-us.com
Date: 2000-11-01 11:10:00+00:00
Subject: Summary of Today's FERC Order

This morning the FERC had its meeting to discuss events in California and  
the FERC,s response to them. The following is a summary of the remarks of 
the  four Commissioners and the major points of what has been ordered: 
?
Major features
?
1.? Proposes to replace ISO and PX boards with independent,  non-stakeholder 
boards.

2.? Continued significant role for the presidents of PX/ISO, who  should be 
made voting members.

3.? Elimination of mandated buy-sell requirement for the IOUs  (although no 
explanation as to whether this requires CPUC action). Over-reliance  on spot 
markets has been problematical.

4.? As an independent exchange, the PX will be free to design the  products 
desired by the market.

5.? The proposed price modification measure will be a temporary  measure. 
Single price for all offers below $150. However, no bid above $150 will  set 
the price for all generators. A seller can bid anything it wants. Allowing  
generators to receive their as-bid price will allow high-cost generators to  
participate in the market. However, the generator will be required to 
provide  confidential reports to FERC explaining the necessity for bids over 
$150 through  12/31/02.

6.? The order requires forward scheduling of 95% of an scheduling  
coordinator,s schedule, with a penalty applied for deviations which exceed 5% 
As  an incentive, the proceeds of the penalties go to the schedulers who 
comply with  the tolerance band.

7.? Rejects the purchase price caps proposed by the ISO. The order  would 
eliminate the ISO,s price cap authority.

8.? Beginning 1/1/01, the prospect of refunds will be available.  
?
Commissioner Hebert
?
Due to a technical problem when I called in, I heard only part of his  
remarks. He announced that he will have a separate concurrence in the order, 
but  is troubled by some of its features. The $150 cap is questionable, 
whether  described as a "Soft cap" or as a "hard cap."
His concern is that it will  clearly discourage new investment in generation. 
He therefore recommended that  the $150 cap should be escalated on a regular 
basis (perhaps every six months)  until it reaches at least $250. 
?
He points out that the ISO and PX are required to make RTO filings to FERC  
on 1/16/01. These filings should address the major aspects of the Order 
issued  today. 
?
Hebert also questioned the issue of refunds, alleging that it was  
"disingenuous" to suggests that refunds were a possible remedy. 
?
Commissioner Breathitt 
?
Breathitt announced almost all of the foregoing major points of the  orderThe 
order is based on a market approach. "In choosing our market-based  approach, 
it is our goal to guide the markets to self-correct and not  re-institute 
command and control regulation.? "We have all worked too hard,  too long, to 
have this result."
?
Commissioner Massey
?
Sixty-five years ago, the Congress decreed that prices had to be just and  
reasonable.? There is no exception for market-based approaches. He will  
concur, as the order does find that prices have been unjust and 
unreasonable.  The order does insure that prices should return to being just 
and reasonable.  Cited Frank Wolak as proposing there ought to be an 18-24 
month forward product  designed which the CPUC will years ago federal law 
dictated that prices had to  be just and reasonable.

The $150 is a "soft cap" and allows a generator to bid above it, but if  it 
does, it will not set the price which other generators receive. He invites  
comments on this issue. 

With regard to retroactive refunds, the Office of the General Counsel  has 
prepared a legal memorandum which concludes that the FERC probably does not  
have authority to order refunds retroactively for any date before October 2,  
2000. Invites comments on this issue. 
California needs new generation and  transmission and the siting authority 
belongs to the state. California must do  its part to ensure that customers 
do, in fact, benefit from competitive markets  that ensure just and 
reasonable prices. 
He is not yet confident that the  Commission has taken all necessary steps. 
?
Chairman Hoecker
?
He strongly supports the order. 

Comments are due in three weeks. This is no time to pull punches. He  cited 
the San Diego hearings as indicating that California markets were,?  "out of 
synch with the needs of the digital economy."? For FERC regulators  who are 
used to corporate struggles among utilities and other large companies,  "this 
was a real eye-opener." 

Average citizens had no warning this was going to happen and they had  no 
competitive alternatives. It was unfair to them and, "there is plenty of  
responsibility for this meltdown to go around." 

"If I was a senior citizen in San Diego living on a fixed income, or a  small 
business owner living on a small profit margin, or a school administrator  
dealing with a tight budget, the doubling of my bill would make me want my 
money  back, or to at least ensure that this won,t happen again in the 
future."
Many  who expected this order, expected "a lynching and the transfer of large 
amounts  of money. They want us to round up the bad guys who manipulated the 
market and  order the disgorgement of their ill-gotten gains. As our legal 
opinion  indicates, that,s not going to happen."? Today,s order offers a 
thoughtful  way back to a rational basis for buying and selling power in the 
West.

We are not ignoring actual or undue discrimination or actual abuses of  
market power. The order makes better market monitoring going forward a  
fundamental part of FERC,s proposal.? If evidence of such behavior is  
brought forward, FERC will act on that information. "However, we can,t delay  
work on a market fix while searching for the culpable parties." 

Hoecker believes that, "strong federal action is both warranted and  
important at this moment."? "The bulk power grid must be made to work  
efficiently across the entire West." 

"Competition is at risk, make no mistake about that. In view of the  
California experience, several states are reconsidering or shelving plans to  
implement competition."? Legislators will want to retain the possibility of  
returning to the old days of vertically-integrated utilities.? "The  
California experience has been instructive, but not helpful(to the 
meandering  implementation of competition throughout the nation." 

The state,s markets have not been "mistakenly federalized" as alleged  by 
some. The markets are regional. California,s access to interstate power  
supplies is critical, as was made evident by recent events. If we do things  
right, California will not be a federal enclave designed to satisfy our 
market  predilections, it will be a workable and competitive market that 
benefits  consumers. 

"This is a strong order. It needs to be a strong order. We expect to  have a 
strong order in December, and the public needs it." 

A copy of these notes are attached if you need to distribute them to  anyone 
in your organizations.
 - November 1 2000 Meeting Notes.doc