Norman,
How much change needs to be made to the netting provisions in light of the recent futures legislation?

H.R. 333, the “Bankruptcy Abuse Prevention and Consumer Protection Act 2001” was reported out of
the House Judiciary Committee on Wednesday, February 14, 2001. During the mark-up hearing,
eighteen amendments were offered with all but onc amendment failing to pass. Voting occurred largely
along party lines. The only amendment that passed was a technical amendment offered by Chairman
Sensenbrenner. Only one Republican crossed party lines to vote for one of the seventeen other

Representative Bachus (R-AL) assured the committee that he was committed to working with
Representative Oxley from the Financial Services Committee on commercial bankruptcy provisions and
netting requirements,

* 0180000010186



[(b)(5)]

CC Secretary O'Neill, Peter Fisher, Dave Aufhauser, Mark Weinberger, John Duncan

01800000010309



{(6)(5)]

CC Secretary O'Neill, Peter Fisher, Dave Aufhauser, Mark Weinberger, John Duncan

01800000010286



{(b)(5)}

CC Secretary O'Neill, Peter Fisher, Dave Aufhauser, Mark Weinberger, John Duncan

01800000010314



From: Eflis, Dina

Sent: Thursday, March 15, 2001 5:59 PM

pa Fisher, Peter; Paulus, Michael; Carleton, Norman
Gross, Jared

SS aul RE: Enron Meeting Request

Jeff Skilling, President and CEO of Enron has requested a meeting with the Secretary for April 5 to discuss the

West Coast energy crisis. | see no reason to object. Thoughts?

”

01800000010180



((b{5)]

01800000010328



To: Josh
From: Sheila
Re: Policy Issues Presented by the Enron Bankruptcy

Per your request, below are some of my personal thoughts on the important policy issues
presented by the Enron bankruptcy and some areas that might be ripe for reform.
In sum, possible initiatives include:

{(b)(5)]

91800000010326


((b)(5)]

1800000010373



Su ee ee

From: O'Neill, Paul

Sent: econ: sernary 08, 2002 5:57 PM

To: O'Neill, Pai

Subject: Enron ene

ActionType: Read

CarbonCopy: O'Neill, Paul:Fisher, Peter, Weinberger, Mark-Aufhauser, David;Ouncan, John;Smith,
Chris;Adams, Tim;Davis, Michele;Sweetnam, Bill Jr;

Sender: Bair, Sheila

Original Mi

From: Bair, Sheila

Sent; 01/09/2002 12:18:18 PM
To: O'Neill, Paul; Fisher, Peter; Weinberger, Mark; Aufhauser, David; Duncan, John; Smith, Chris
Cc: Adams, Tim; Davis, Michele; Sweetnam, Bill Jr

Subject: Enron Paper
Attached please find a revised Enron paper with the following changes :

{(b)(5)]

| will send to memo to Josh as an expression of my personal thoughts. | would like to do so no tater than 3:00 this
afternoon, so if you have any further suggestions, I'd appreciate receiving them before then.

Thanks
Sheila

——Attachments—

JI #7

Original Message Enron3.doc (35 KB)

, 1800000010324



> alone when it comes to electricity,” Bowen said. “Do we want to subject
> ourselves to times when rates are really low and really high?"

>> senen=

> POWER DEREGULATION CHRONOLOGY --

“April 1994: California Public UtilitiesCommission indicates it favors deregulation.
October 1995: Framework of deregulation laid out in memorandums between large users,
energy providers and utilities. --

“January 1996: Bills introduced in legislature to codify

deregulation plan. ==

“August 1996: The "Steve Peace death march” hashes out fine points of law, It passes both
houses unanimously. --

-Sept. 23, 1996: Gov. Pete Wilson signs the deregulation bill. --

April 1, 1998: After a four-month delay, deregulation begins.
-June 2000: San Diego has satisfied conditions for dereguleti'
lifted. Shortages drive prices up 300 percent in some cases. -
September 2000: The utilities begin to warn of billions in mounting debt and seek an end
to the rate cap that has prevented them from passing costs on to customers. --

November, December 2000: More shortages put energy system in state of perpetual crisis,
despite fall being a season of traditional low demand: state regulators consider
utilities’ requests for rate increases. A decision is expected Jan. 4.

» and the cate cap there is

> ====-= PLAYERS IN THE DEREGULATION DRAMA -~

“Steve Peace:

> Took control of the legislative process while a state senator and drove
> deregulation into law. ==

-D.J, Smith:

> Lobbyist for large, industrial electricity customers and an early
advocate of deregulation. --

Diane Martinez:

> As state senator, helped with the deregulation legislation, --

~Greg Conlan:

> Sympathetic to industrial consumers with high bills while serving on
the California Public Utilities Commission. --

~Pete Wilson:

> Saw deregulation as an answer to California's then-ailing economy. --
~-Kenneth Lay:

> Noted in 1997, as chief executive of Enron Corp, in Houston, that
little competition had emerged. “It's like California announced a party but
nobody's showing up,” he said. --

~Gordon Smith:

> As chief executive of PG&E, supported deregulation, at one point noting
there had been a “ceiling on our profits" under the old system.

> E-mail Christian Berthelsen at cherthelsen@sfchronicle.com.

>. eccanesunscnacstesccansanssonasavonans: me meweenennenceneenennenseeneen=

> Copyright 2000 SF Chronicle

0180000010190



From: Bair, Sheila

Sent: Wednesday, January 09, 2002 12:18 PM
To: O'Neill, Paul; Fisher, Peter; Weinberger, Mark; Aufhauser, David: Duncan, John; Smith, Chris
Cc: Adams, Tim; Davis, Michele; Sweetnam, Bill Jr
Subject: Enron Paper
Enron3.doc (35 KB)
Attached please find a revised Enron paper with the following changes
((b)(5)]

| will send to memo to Josh as an expression of my personal thoughts. | would like to do so no later than 3:00 this
afternoon, so if you have any further suggestions, I'd appreciate receiving them before then,

Thanks
Sheila

1800000010310



To: Josh
From: Sheila
Re: Policy Issues Presented by the Enron Bankruptcy

Per your request, below are some of my personal thoughts on the important policy issues
presented by the Enron bankruptcy and some areas that might be ripe for reform.

In sum, possible initiatives include:

((b(5)]

01800000010084



{(o)(5)]

1800000010284



From: Schultheiss, Heidilynne

Sent: Herve January 02, 2001 2:23 PM

To: jporhr cl radu tectsh preamp tir Michelle; Gross, Jared
Ce: Carleton, Norman; Nickoloff, Peter; Soares, Chris; Cetina, Ji

Subject: SF Chronicie Article on Cal Energy Situation

This was sent to me by 4 former DoE employee who now works for an private-sector energy
company in Houston. It's a good, comprehensive background piece. Unfortunately I don't
have it in electronic form, and the hardcopy (margin) format is a bit strange.

December 31, 2000 (SF Chronicle)

Genesis Of State's Energy Fiasco/String of bad decisions on deregulation
could end up costing consumers $40 billion

Christian Berthelsen

Next month, about 10 million Californians may begin paying as much as
in a maddening coda to one of the most
r made.

When the state's leaders started moving the energy system toward
deregulation six years ago, they envisioned a brand new day in which
utility companies' long-standing monopoly would be broken and rates would
decline by 4s much as 25 percent.

Instead, when it is over, it may cost customers of the state's
investor-owned utilities $40 billion, perhaps more. In the coming year, it could
harm the world's sixth-largest economy and send a ripple effect throughout
the globe for those dependent on California's continued prosperity.

This is the story of what went wrong with deregulation, and how
planning lapses, serious policy blunders -- and warnings that came too late -- set
California's two main utilities, Pacific Gas & Electric Co, and Southern
California Edison, toward a train wreck.

Power plant construction lagged while demand expanded. Leaders
misjudged how much competition there would be to supply California with juice. And
flawed deregulation laws left utilities and their customers at the mercy
of power companies, extracting the highest price for electricity.

"There was a blind adherence to free-market ideology that couldn't
possibly work," said Eugene Coyle, a former utility securities analyst,
economist and early opponent of deregulation, “There were poorly
thought-out specifics.”

In the early 1990s, businesses were fleeing the state amid the worst
economic times since the Great Depression. Energy rates were 50 percent
higher than they w on average across the nation, because of commitments
to more expensive, environmentally friendly power and cost overruns for
nuclear power plant construction.

Large customers such as steel makers, mining concerns and cement
makers, for which electricity costs make up 25 percent of their overhead, saw that
independent power producers were offering power much more cheaply. They
began to insist on change.

The United States had deregulated long-distance telephone service,
airlines and a host of other industries, often with resulting competition
that was a boon to consumers. Why not do the same for electricity?

So California embarked on a pioneering experiment. In 1993 and 1994,
the California Public Utilities Commission began to draft such 4 policy. It
allowed large users to buy power directly from independent producers and
froze customer rates at artificially high levels so utilities could
recover their investments in costly plants.

The utilities sought to have the terms codified in law, and in early
1996, a number of bills were introduced in the Legislature to do so.

Some observers say that what happened next contributed to the overall
> plan's flaws. Months passed while the discussion meandered and faltered,

bad 01800000010187

vvv¥vVV VV

VV VVVV VV VV

v



{(b)(5)]

1800000010249



VV VV VV VV VV

suddenly tripled.

The debt load of PG&E and Edison began to balloon -- to what will be an
estimated $11 billion by the end of 2000 -- as they borrowed to pay for
power while being barred from passing that cost on to consumers.

Suddenly, the glow of deregulation had lost its luster.

It immediately became clear that California's failure to build power
plants as its rapidly growing economy pushed demand upward was a serious
problem. Increasingly, the state's growing technology economy depended on
electricity, and new home construction concentrated in hot areas like
Riverside and San Bernardino counties, where air conditioning is a must.

And for all the talk of competition, there was a serious flaw that made
the market singularly uncompetitive.

In order to encourage generators to create as much power as possible,
deregulation guaranteed the highest price for wholesale electricity.

Through a practice known as the “market clearing price,” the last bidders

-- who are invariably the most expensive -- set the price everyone would
receive. In other words, if the first generator bids $30 for a certain amount of
megawatts but the last bids $100, those two bidders and everyone in

between receive $100. As the wholesale price of electricity skyrocketed to
$1,500 per megawatt hour this month from $30 before the storm, the high

cost has been compounded by the fact that everyone receives that amount.

Further, the law had encouraged utilities to sell their generators and
existing electricity supply without guaranteeing access to affordable

re

Rather than arranging to buy power on long-term contracts that could
have saved money, they were put in the position of having to buy their power on
a market where profit was the ultimate goal, and they and their consumers
had to pay the price.

Perhaps in the biggest misjudgment, policymakers neglected the huge
amount of money it takes to run power companies and attract customers. Thus, they
overestimated how much competition would flourish in the market.

Running power companies is so costly -- $500 million to build a new
plant == that only a handful of companies bought into the market. And once they
were here, the marketing cost of signing up new customers was
astronomical.

Indeed, since choice has become available to California, less than

1 percent of residential customers has changed electricity providers.

The same goes for just 15 percent to 20 percent of industrial customers -- the
class that advocated deregulation in the first place.

At the end of the day, this experiment in deregulation has come at a
staggering cost: $40 billion, That includes the $23 billion already paid
by customers when cates were frozen at artificially high levels, and the
$7.5 billion in bonds financing consumers’ own rate reduction.

Now a new tab is running -- whatever share of the $11 billion in debt
that state utility regulators decide customers should pay.

The state's leaders are now casting around desperately for solutions to
put Humpty Dumpty back together agein.

The FERC is encouraging the utilities to enter long-term contracts with
suppliers, and market clearing pricing is under review, The sta’
utilities commission will decide Jan. 4 how much of a rate incr
grant to PG&E and Edison. And a dozen or so power plants are under
construction.

Meanwhile, consumer advocates are backing a state ballot measure that
would not only re-regulate utilities but essentially make energy supply a
government function. And they are challenging the utilities’ efforts to
pass on their debts to consumers, noting they have also reaped windfall
profits from selling electricity.

For example, in the quarter covering the summer months when power costs
first went haywire, PGSE's profits amounted to $225 million, a 22 percent
increase over the same period in the previous year.

In the short term, the state is considering ways to encourage energy
conservation the same way it did with water. And the question now being
asked is whether a commodity as central to the weli-being of the economy
should ever have been placed almost entirely under the control of free
enterpri

“There's a discussion on how much we want to rely on market forces

* 01800000010189

ie to



{(b)(5)]

1800000010285



((b)(S)]

Meanwhile slaffs of the various agencies continue to discuss the BMA/ISDA draft as we continue to study it.

Norman
Original Message —-
From: Hammond, Donald
Sent: —Thursclay, February 15, 2001 8:26 AM
Tor (DeMarco, Edward; Ellis, Ding; Huffman, Lucy; Carleton, Norman; Mclinemey, Roberta; Constantine, Eleni; Mughes, Gerry; Stewart,
cc Tishuk, Brian; Robbins, Eric
‘Subject: RE: Bankruptcy Reform Mark-up Hearing

Ed,
Thanks. Are we comfortable with this version of the bill and process wise where do we go from here?

i

How much change needs to be made to the netting provisions in light of the recent futures legislation?

—-Onignal Message~-
From: DeMarco, Edward
Sent: Thursday, February 15, 2001 8:22 AM

To: Hammond, Donald; Elis, Dina; Hutiman, Lucy; Carleton, Norman; McInerney, Roberta; Constantine, Eleni; Hughes, Gerry; Stewart,

FW: Bankruptcy Reform Mark-up Hearing

H.R. 333, the “Bankruptcy Abuse Prevention and Consumer Protection Act 2001" was reported out
of the House Judiciary Committee on Wednesday, February 14, 2001. During the mark-up hearing,
eighteen amendments were offered with all but one amendment failing to pass. Voting occurred
largely along party lines. The only amendment that passed was a technical amendment offered by
Chairman Sensenbrenner. Only one Republican crossed party lines to vote for one of the seventeen
other amendments that failed.

Representative Bachus (R-AL) assured the committee that he was committed to working with
Representative Oxley from the Financial Services Committee on commercial bankruptcy provisions
and netting requirements.

01800000010184



[OUTSIDE SCOPE]

01800000010377



From: Adams, Tim

Sent: Tuesday, January 08, 2002 2:15 PM
To: Kupfer, Jeffrey

Subject: FW: Enron

Importance: High

Jeff - nas PHON seen this?

gpg AES

From: Bair, Sheila

Sent: Tues, January 08, 2002 12:55 PM

To: Fisher, Peter; Aufhauser, David; Weinderger, Mark; Duncan, Jotn; Smith, Chris
Ce: —-*

Importance: on

Josh Bolten’s office called me this moming requesting that | prepare a paper for him on policy issues raised by the Enron
bankruptcy. (I've know Josh for years and he is aware of the work | have done in the area of OTC derivatives oversight,
which | assume was the reason for the call.) | was going to prepare @ short paper discussing:

{(b)(5)]

| will try to have something out for your review by COB today. Josh is not looking for specific proposals at this point. He
just wants to make sure they are aware of all the issues.

Shella

* 01800000010090



From: Bair, Sheila
Sent: Wednesday, January 09, 2002 12:18 PM
To: O'Neill, Paul; Fisher, Peter; Weinberger, Mark; Aufhauser, David; Duncan, John; Smith, Chris
Ce: Adams, Tim; Davis, Michele; Sweetnam, Bill Jr
Subject: Enron Paper
Eneor3.doc (35 KB)
Attached please find a revised Enron paper with the following changes
{(b)(5)]

| will send to memo to Josh as an expression of my personal thoughts. | would llke to do so no later than 3:00 this
afternoon, so if you have any further suggestions, I'¢ appreciate receiving them before then,

Thanks
Sheila

01800000010282



cn a a ———

From: O'Neill, Paul

Sent: Wednesday, January 09, 2002 5:57 PM

To; ONeill, Paul H.

Subject: Enron Paper

ActionType: Read

CarbonCopy: O'Neill, Paul;Fisher, Peter,Weinberger, Mark;Aufhauser, David;Duncan, John;Smith,
Chris;Adams, Tim;Davis, Michele;Sweetnam, Bill Jr;

Sender: Bair, Sheila

——Onginal Message--—-

From: Bair, Shela

Sent: 01/09/2002 12:18:18 PM
To: O'Neill, Paul; Fisher, Peter, Weinberger, Mark; Aufhauser, David; Duncan, John; Smith, Chris
Cc: Adams, Tim; Davis, Michele; Sweetnam, Bill Jr

Subject: Enron Paper
Attached please find a revised Enron paper with the following changes :

{(b)(5))

| will send to memo to Josh as an expression of my personal thoughts. | would like to do so no later than 3:00 this
afternoon, so if you have any further suggestions, I'd appreciate receiving them before then.

Sheila
~——Attachments-—-

JI ww

Original Message Enron3.doc (35 KB)

01800000010271



{(b)(5)]

01800000010086



{((b)(5)]

01800000010085



—- —- OKT Te

From: Carleton, Norman

Sent: Thursday, February 15, 2001 10:07 AM

To: Hammond, Donald; DeMarco, Edward; Ellis, Dina; Huffman, Lucy; Mcinemey, Roberta;
Constantine, Eleni; Hughes, Gerry; Stewart, Lawranne

Cec: Tishuk, Brian; Robbins, Eric; Paulus, Michael; Sutton, Gary; Huffman, Lucy; McGivern, Tom;
Nickoloff, Peter; Schulthess, Heiditynne; Gross, Jared

Subject: RE: Bankruptcy Reform Mark-up Hearing

Don,

((b)(5))

Meanwhile staffs of the various agencies continue to discuss the BMA/ISDA draft as we continue to study it

Norman
——-Onginal Message
From: Hammond, Donaid
Sent: Thursday, February 15, 2001 8:26 AM
To: DeMarco, Edward; Bis, Dina; Huffman, Lucy; Carleton, Norman; McInerney, Roberta; Constantine, Bent; Hughes, Gerry; Stewart,
Ce: Tishuk, Brian; Robbins, Eric

Subject: RE: Bankruptcy Reform Mark-up Hearing
Ed,
Thanks. Are we comfortable with this version of the bill and process wise where do we go from here?

° 01800000010185



—oO OO — —

From: Adams, Tim
Sent: Tuesday, January 08, 2002 2:19 PM
To: Kupfer, Jeffrey
Subject: RE: Enron :
okay
Original Message----
From: Kupter, Jeffrey
Sent: Tuesday, January 08, 2002 2:18 PM
To: Tim

AGans,
Subject: RE: Enron

nope — why don’t you let her know not to send anything over until he signs off.

| will try to have something out for your review by COB today. Josh is not looking for specific proposals at this
point. He just wants to make sure they are aware of ail the issues,

Sheila

01800000010089



From: Bair, Sheila

Sent: Wednesday, January 09, 2002 12:18 PM
To: O'Neill, Paul; Fisher, Peter; Weinberger, Mark; Aufhauser, David; Duncan, John; Smith, Chris
Ce: Adams, Tim; Davis, Michele; Sweetnam, Bill Jr
Subject: Enron Paper
v7)

Enron3 doc (35 KB)
Attached please find a revised Enron paper with the following changes
{(b}(5)}

| will send to memo to Josh as an expression of my personal thoughts. | would like to do so no later than 3:00 this
afternoon, so if you have any further suggestions, I'd appreciate receiving them before then,

Thanks
Sheila

7 1800000010247



From Adams, Tim

Sent: Wednesday, April 04, 2001 3:44 PM
To: McHale, Stephen

Ce: Aufhauser, David

Subject: Personal Financial Issues

{(b)(5)]

01800000010001



To: Josh
From: Sheila
Re: Policy Issues Presented by the Enron Bankruptcy

Per your request, below are some of my personal thoughts on the important policy issues
presented by the Enron bankruptcy and some areas that might be ripe for reform.

In sum, possible initiatives include:

((b)(5)}

1800000010320



Constantine, Eleni

Friday, March 16, 2001 1:48 PM
Paulus, Michael; Mcinerney, Roberta

RE: Enron Meeting Request

Original Message--—

From: Powis, Michael

Sent: ‘Thursday, March 15, 2001 6:02 PM
To: Mcinemney, Roberta; Constantine, Bent
Subject: FW: Enron Meeting Request

Message——

Elis, Dina

Tharsday, March 15, 2001 5:59 PM

Fisher, Peter; Paulus, Michael; Carteton, Norman
Gross, Jared

Joff Skilling, President and CEO of Enron has requested a meeting with the Secretary for April 5 to discuss

the West Coast energy crisis. | see no reason to object.

0180000001017



From: Paulus, Michael

Sent: Friday, March 16, 2001 1:55 PM
To: Stewart, Lawranne

Ce: Gross, Jared

Subject: FW: Enron Meating Request

FYI. I spoke with Eleni and told her the only info we had was that they wanted to talk about California energy crisis, She

may be calling you to follow up further,

From: Eleni
‘Sent: Friday, March 16, 2001 1:48 PM
To: Paulus, Michael; Meinemey, Roberta
‘Subject: RE: Enron Meeting Request
{(b)(5)]

seaeOriginal Message=----

From: Paulus, Michael

Sents ‘Thursday, March 15, 2001 6:02 PM

Tor j, Roberta; Constantine,

PW: Enron Meeting

Original Message——

From: Bits, Dina

‘Sent: ‘Thursday, March 15, 2001 5:59 PM

To: Fisher, Peter; Paulus, Michael; Carteton, Norman
Co Jared

Gross,
Subject: RE: Enron Meeting Request

4

01800000010177



{(b)(5))

cc; Secretary O'Neill
Peter Fisher
Dave Aufhauser
Mark Weinberger
John Duncan

‘ 01800000010374


{(6)(5)]

01800000010312



——
From: Adams, Tim

Sent: Tuesday, January 08, 2002 2:20 PM
To: O'Neill, Paul H.

Subject: FW: paper for Josh

Importance: High

Categories: Send Directly

we'll have this for you to see by end of business today.

om-Oniginal Message—

From: Bair, Sheta

Sent: ‘Tuesday, January 06, 2002 12-55 PM

To: Fisher, Peter; Authauser, David; Weinberger, Mark; Ouncan, Johe; Smith, Cis
Cc: Adams, Tim

‘Subject: Enron

Importance: High

Josh Bolten’s office called me this moming requesting that | prepare a paper for him on policy issues raised by the Enron
bankruptcy. (I've know Josh for years and he is aware of the work I have done in the area of OTC derivatives oversight,
which | assume was the reason for the call.) | was going to prepare a short paper discussing:

((b)(5)]

| will try to have something out for your review by COB today. Josh is not looking for specific proposals at this point. He
just wants to make sure they are aware of all the issues,

Sheila

01800000010275



((6)(5)]

01800000010321



From: O'Neill, Paul H.

Sent: Tuesday, January 08, 2002 2:21 PM
To: Kupfer, Jeffrey; Adams, Tim
Subject: FW: paper for Josh
Importance: High

Categories: Send Directly

——Original Message——

From: Adams, Tin

Sent: Tuesday, = praaiiradonstsad

To: O'Neil, Pat

‘Subject: Pvt perfor ooh

Importance: High

we'll have this for you to see by end of business today.

-—Oniginal Message—--

From: Bakr, Shee
Sent: Tuesday, Jenuary 08, 2002 12:55 PM

Tor Fisher, Peter; Aufhauser, David; Weinberger, Mark; Duncan, John; Smith, Chvis
Ce: ‘Adams, Tim

Subject: Enron

Importance: High

Josh Botten’s office called me this moming requesting that | prepare a paper for him on policy issues raised by the Enron
bankruptcy. {I've know Josh for years and he is aware of the work | have done In the area of OTC derivatives oversight,
which | assume was the reason for the call.) | was going to prepare a short paper discussing:

{(b)(5)]

| will try to have something out for your review by COB today. Josh is not looking for specific proposals at this point. He
just wants to make sure they are aware of ail the issues,

Sheila

” 1800000010274



{(b)(S)]

CC Secretary O'Neill, Peter Fisher, Dave Aufhauser, Mark Weinberger, John Duncan

1800000010087



VVVV VV VV VV

and at one point it even appeared that no law would be passed.

That's when state Sen. Steve Peace took the reins and tried to make
something happen.

The San Diego legislator already had won the respect of his colleagues
for his work on another complex piece of legislation, reform of the workers’
compensation system.

During 4 hurried two-week conference in August -- dubbed the “Steve
Peace death march” for his propensity to keep negotiators at the table late into
the night -- the fine points of the energy law were hashed out.

Legislators entrusted their judgment to Peace and the few colleagues
who worked on the bill. There was an abiding sense by a number of participants
that few members of either house knew what was in the bill or even
understood it. It was passed by both houses of the Legislature unanimously
and signed into law the following month.

“People were grateful to Peace and (former Sen. Diane) Martinez for
taking it on," said Debra Bowen, D-Los Angeles, the current chair of the Senate
energy committe “Historically, utilities were a pretty boring tepic, and
I think term limits factored into it.”

The law was to end the monopolistic control that utilities held over
both power production and supply by requiring them to sell off their
generators. It set rates artificially high so they could recover money
from bad investments. And it gave them nearly two years to prepare for
competition,

Moreover
percent cut.

The sy: took effect April 1, 1998, and, at first, things seemed to
work well. Soon, though, there were warning signs.

It turned out the residential rate cut was actually going to be
financed with $7.5 billion in bonds that customers had to pay off. So the reduction
in real terms was closer to only 3 percent, not 10 percent.

Then in early 1999, the California Energy Commission, which tracks the
state's supply and demand, was warning of coming supply shortfalls.

Demand was skyrocketing, the agency pointed out in a Senate energy
committee hearing, and no new significant generation had been built in a
decade. Without more power, California was going to run out. But
construction of new power plants takes at least two years from start to
finish, and the state was already running behind in accommodating the
growth.

Back in the early 1990s, however, the energy commission had painted a
far different picture. At that time, California had an oversupply of power,
perhaps as much as 30 percent more than it needed,

There was so much that when the utilities ccemission set up an auction
for the construction of new facilities in the early 1990s, Edison and San
Diego Gas and Electric Co. appealed to the Federal Energy Regulatory
Commission to halt the auction, arguing there was already too much
generation in California. The FERC cbliged.

“If anybody had told us in 1996, or even in 1998, that we would
experience (such) load increases, we would have said, ‘You're crazy,’ " said 0.J,
Smith, a lobbyist for the California Large Energy Consumers Association
and one of the top advocates of deregulation. "Nobody had ever seen load
go up like that in a mature situation.”

Still, production figures from Edison Electric Institute, which provide
2 crude indicator of demand, show consumption grew by 4 percent in 1996, 3.4
Percent in 1997, nearly 5 percent in 1999, and a whopping 10 percent this
year.

And surrounding states, including Arizona, Nevada, Oregon and
Washington, began to experience the same demand growth. Since California imported as
much 4s 25 percent of its power from those states, the amount available
was suddenly reduced by as much as half.

But considering the long time it takes to build plants, in part because
of public opposition, the warnings were too little, too late. In fact, the
situation remained far off the radar screen of consumers, since most were
still insulated from price spikes by a rate freeze.

Then this summer, things started to spiral out of control.

San Diego was the first region to meet the conditions necessary for
full deregulation, and as hot summer months added to demand, customers’ bills

* 0180000010188

residential customers would be granted an immediate 10



((o)(5)]

1800000010372



((b}(5)]

01800000010307



{(6)(5)]

01800000010308



{(b)(5)]

01800000010327



((b{5)]

01800000010250



Turey

DEPARTMENT OF THE TREASURY
WASHINGTON, ©.C.

ASSISTANT SECRETARY January 9, 2001

MEMORANDUM FOR JOSHUA BOLTEN
DEPUTY CHIEF OF STAFF
WHITE HOURSE

FROM: Sheila C. Bair of Bb
Assistant Secretary for Financial Institutions

SUBJECT: Policy Issues Presented by the Enron Bankruptcy

Per your request, below are some of my preliminary personal thoughts on the important policy
issues presented by the Enron bankruptcy and some areas that might be ripe for reform.

In sum, possible initiatives include;

{(b)(5)]

01800000010371



OO Orr’

From: Curry, Paul
Sent: Wednesday, January 09, 2002 5:58 PM
To: Kupfer, Jeffrey
Subject: FW: Enron Paper
fyi
Original Message--—
From: Bair, Shela
Sent: Wednesday, January 09, 2002 12:18 PM
To: O'Neill, Paui; Fisher, Peter; Weinberger, Mark; Aufhauser, David; Duncan, John; Smith, Owis
Ce: Adamns, Tim; Davis, Michele; Sweetnam, Bil Jr
Subject: Envon Paper
7)
Enron3.doc (35 KB)
Attached please find a revised Enron paper with the following changes

twill send to memo to Josh as an expression of my personal thoughts. | would like to do so no later than 3:00 this
afternoon, so if you have any further suggestions, I'd appreciate receiving them before then.

Thanks
Shella

‘a 01800000010083


From: Curry, Paul

Sent: Wednesday, January 09, 2002 5-58 PM
To: Kupfer, Jeffrey

Subject: FW: Enron Paper

tyl

——Original Message-——-

From: Bair, Sheila

Sent: Wednesday, January 09, 2002 12:18 PM

To: O'Neill, Paul; Fisher, Peter; Weinberger, Mark; Aulhauser, David; Quncan, John; Smith, Chrts
Cer ‘Adams, Tien; Davis, Michele; Sweetnam, Bil Jr

Subject: Enron Paper

Eneon3.doc (35 KB)
Attached please find a revised Enron paper with the following changes

{((b)(5)]

twill send to memo to Josh as an expression of my personal thoughts. | would like to do so no later than 3:00 this
afternoon, so if you have any further suggestions, I'd appreciate receiving them before then.

Thanks
Sheita

01800000010319



((o)(5)]

01800000010313



—_—_ eRe

From: Fisher, Peter

Sent: Mer eag March 15, 2001 5:31 PM
To: Paulus, Michael; Ellis, Dina; Carleton, Norman
Ce: Gross, Jared
Subject: RE: Enron Meeting Request
J also see no reason to object.

Original Message-—-—

From: Paushas, Michae!

Sent: ‘Thursday, March 15, 2001 5:27 PM

To: Eis, Oina; Fisher, Peter; Carleton, Norman

ca Gross, Jared

Subject: Enron Meeting Request

Jeff Skilling, President and CEO of Enron has requested a meeting with the Secretary for April 5 to discuss the West
Coast energy crisis. | see no reason to object. Thoughts?

01800000010181



((bXS)}

CC Secretary O'Neill, Peter Fisher, Dave Aufhauser, Mark Weinberger, John Duncan

01800000010329



V——_—O—————————_—— —

From: Hammond, Donald
Sent: Thursday, February 15, 2001 10:25 AM
To: Carleton, Norman; DeMarco, Edward; Ellis, Dina; Huffman, Lucy; Mcinemey, Roberta;

Constantine, Eleni; Hughes, Gerry; Stewart, Lawranne

Tishuk, Brian; Robbins, Eric; Paulus, Michael; Sutton, Gary; Huffman, Lucy; McGivern, Tom;
Nickoloff, Peter; Schultheiss, Heiditynine; Gross, Jared

RE: Bankruptcy Reform Mark-up Hearing

Norman,

Thanks, | believe that the netting provisions will be a major agenda item at next week's Working Group meeting. | think it
is very useful to have that discussion before meeting with the Hill staff.

Don
~— Original Message
From: Carteton, Norman
Sent: ‘Thursday, February 15, 2001 10:07 AM
Tor Hammond, Donald; DeMarco, Edward; Els, Dina; Huffman, Lucy; Mcinemey, Roberta; Constantine, Eleni; Hughes, Gerry; Stewart,
Ce: Tang, Bran Raisins, Bic; Pastas, Michae Sic, Gary; Melman, Lucy; Mecivarn, Term: Mek Peter; Sonoda, Heche
‘Subject: RE; Bankruptcy Reform Mark-up Hearing
Don,

{((b)(5)]

be 1800000010183



From: Granat, Rochelle

Sent: Wednesday, April 04, 2001 4:58 PM
To: McHale, Stephen; Schmalzbach, Kenneth
Ce: Adams, Tim; Rahilly, Lyn
Subject: RE: Personal Financial Issues
[(b)(5)]
——Orignal Message-—-
From: McHale, Stephen
Sent: Wednesday, Apel 04, 2001 4:00 PH
To: Schmalzbach, Kenneth; Granat, Rochelle
Cc: Adaens, Tin
‘Subject: FW: Personal Financial Issues
{(b)(5))
——Original Message-—

From: Adams, Tin

Sent: — Wednesday, Apel 04, 2001 3:44 PM
To: VicHale, Stephen

cc: Authouser, David
‘Subject: Personal Financial Issues:

[(6)(5)]

‘ 1800000010003



To: Josh
From: Sheila
Re: Policy Issues Presented by the Enron Bankruptcy

Per your request, below are some of my personal thoughts on the important policy issues
presented by the Enron bankruptcy and some areas that might be ripe for reform.

In sum, possible initiatives include:
{(b)(5)]

1800000010306



To: Josh
From; Sheila
Re: Policy Issues Presented by the Enron Bankruptcy

Per your request, below are some of my personal thoughts on the important policy issues
presented by the Enron bankruptcy and some areas that might be ripe for reform.
In sum, possible initiatives include:

{(b)(5)]

01800000010248



oT —- qeKei Kei —

From: McHale, Stephen

Sent: Wednesday, April 04, 2001 4:00 PM
To: Schmalzbach, Kenneth; Granat, Rochelle
Ce: Adams, Tim
‘Sub FW: Personal Financial issues
{(b)(5))
Original Message
From: Adams, Tim
Sent: Wednesday, Apri 4, 2001 3:44 PM
To: Motiale, Stephen
ce Authauser, David

Subject: Personal Financial Issues

{(b)(5)]

01800000010002



{(b)(5)]

01800000010322



To: Josh
From: Sheila
Re: Policy Issues Presented by the Enron Bankruptcy

Per your request, below are some of my personal thoughts on the important policy issues
presented by the Enron bankruptcy and some areas that might be ripe for reform.
In sum, possible initiatives include:

{(b)(5))

01800000010283



To: Josh
From: Sheila
Re: Policy Issues Presented by the Enron Bankruptcy

Per your request, below are some of my personal thoughts on the important policy issues
presented by the Enron bankruptey and some areas that might be ripe for reform.

In sum, possible initiatives include:

{(b)(5)]

01800000010311



{(b)(5)]

CC Secretary O'Neill, Peter Fisher, Dave Aufhauser, Mark Weinberger, John Duncan

01800000010251



From: Paulus, Michael

Sent: Thursday, March 15, 2001 6:02 PM
To: Mcinerney, Roberta; Constantine, Eleni
Subject: FW: Enron Meeting Request

Please see below. Any thoughts?

——Original Message--—

From: Eis, Dina

‘Sent: Thursday, March 15, 2001 5:59 PM

To: Fisher, Peter; Paulus, Michael; Carieton, Norman
cc Gross, Jared

‘Subject: RE: Enron Meeting Request

Original Message——
From: Fister, Peter
Sent: ‘Thurscay, March 15, 2001 5:31 PM
To: Pouis, Micheet; Ells, Cine; Carleton, Noman
cc Gross, Jared
Subject: RE: Enron Meeting Request
| also see no reason to object.
—Original Message——

From: Paulus, Michael

Sent: = Thursday, March 15, 2001 5:27 PM

To: Elis, Cina; Fisher, Peter; Carleton, Norman
Ce: Gross, Jared
‘Subject: Enron Meeting Request

Jeff Skilling, President and CEO of Enron has requested a meeting with the Secretary for April 5 to discuss the
West Coast energy crisis, | see no reason to object. Thoughts?

s 01800000010179



{(bX5)]

CC Secretary O'Neill, Peter Fisher, Dave Aufhauser, Mark Weinberger, John Duncan

1800000010323


Sent: Wednesday, January 09, 2002 12:18 PM
To: O'Neill, Paul; Fisher, Peter; Weinberger, Mark; Aufhauser, David; Duncan, John; Smith, Chris
Ce: Adams, Tim; Davis, Michele; Sweetnam, Bill Jr
Subject: Enron Paper
v7)

Enron3.doc (35 KB)
Attached please find a revised Enron paper with the following changes
{(b)(5))

| will send to memo to Josh as an expression of my personal thoughts. | would like to do so no later than 3:00 this
aftemoon, so if you have any further suggestions, I'd appreciate receiving them before then.

Thanks
Sheila

' 01800000010325



V—————

From: Paulus, Michael

Sent: Thursday, March 15, 2001 5:27 PM

To: Ellis, Dina; Fisher, Peter; Carleton, Norman
Ce: Gross, Jared

Subject: Enron Meeting Request

Jeff Skilling, President and CEO of Enron has requested 3 meeting with the Secretary for April 5 to discuss the West
Coast energy crisis. | see no reason to object, Thoughts?

» 01800000010182