Subject: Ken Lay's Meeting w/Davis' Energy Advisors


On Friday, I attended a meeting with Ken Lay and Karen Denne that Mike Peev= ey=20 and David Freeman requested.
Mike Peevey was President of Southern=20 California Edison before founding NEV (which he eventually sold to AES).
= =20 Freeman is General Manager of LADWP.
=20  The Governor hired Peevey to be his chief energy advisor.
Freeman is the= =20 Governor=01,s chief negotiator responsible for signing power contracts on b= ehalf=20 of DWR now that the Legislature has passed AB1X and the Governor has signed= =20 it.
John Burton, the leader of the State Senate, is responsible for gettin= g=20 the Freeman the job of chief negotiator, but Peevey was clearly in charge.
= =20  Also at the meeting was Vikram Budraja, former SVP of power systems and=20 planning for Edison.
He=01,s now a private consultant that Freeman hired t= o=20 help him with the contract negotiations.
Peevey asked for the meeting to urge Enron to respond to DWR=01,s RFP issue= d on=20 Friday.
Peevey/Freeman want to announce a package of deals on Tuesday.
Th= ey=20 implied that they=01,ve already got some deals done and expect to have 8+ d= eals=20 to announce on Tuesday, though they gave no details other than to say that= =20 they=01,ve got a deal with Calpine (as reported in the press).
Their plan = is to=20 announce on Tuesday the names of the suppliers they=01,ve signed with, the = total=20 number of megawatts signed, and the average price per MW.
They are concern= ed=20 that the media will want them to make public the details of each individual= =20 deal, which for obvious reasons they don=01,t want to do.
Peevey and Freeman also said that they don=01,t want to sign too many long-= term=20 contracts though they recognize that there=01,s a trade-off between term an= d=20 price.
Ken Lay told them that Enron would respond.
ENA is preparing a response.
= He=20 also told them that EES was working on a plan to reduce demand at our=20 customers=01, facilities and that the plan would be completed and ready for= =20 implementation very soon.
I=01,ve summarized the points that Ken Lay made and the responses from Peev= ey=20 and Freeman:  It would be difficult to enter into contracts without some assurance that D= WR=20 is creditworthy.
Response from Peevey/Freeman: AB1X provides DWR the funds necessary=01*beginning on Friday, Feb 1st=01*to= =20 purchase the power necessary to fill the utilities=01, short position.
Ken=  Lay=20 pressed them on this point and Peevey insisted that AB1X provides the funds= =20 needed to pay suppliers.
The RFP should give suppliers maximum flexibility in coming up with proposa= ls.
Response from Peevey/Freeman: Be as creative as possible.
All offers will be considered (despite the=20 language contained in the RFP).
The only customers who have been protected from California=01,s failed=20 restructuring law are customers who chose another provider under Direct=20 Access.
In addition, one of the quickest ways to help solve California=01,= s=20 shortage is to work with customers to reduce demand and develop on-site=20 generation.
Taking away Direct Access and access to customers generally=01= *as=20 AB1X does=01*is therefore a dumb idea and must be reversed.
Response from Peevey: He agreed but said that it was impossible to remove it from the bill.
He= =20 affirmed what we already know=01*that the head of the Senate oversight comm= ittee=01* Debra Bowen=01*is working on a =01&clean-up=018 bill to remove the prohibit= ion.
In=20 response to Ken Lay=01,s points that California needed to make sure that ut= ility=20 interconnection and stand-by rates didn=01,t continue to impede on-site=20 generation, Peevey and Freeman said that the Governor understood the proble= m=20 and was prepared to fix it.
Siting laws have got to be streamlined and California (i.e., the Governor)= =20 has got to credibly commit to the swift development of new power plants in= =20 order to push the forward curve down.
Response from Peevey/Freeman: The Governor is scheduled to offer a plan this week that is targeted at=20 expediting siting and development.
DWR should accept demand reduction bids at the same time that it accepts=20 supply-side bids.
Response from Peevey/Freeman: They agreed but said that there is extreme political pressure to announce t= he=20 signing of some supply deals on Tuesday in order to prove to legislators th= at=20 DWR will be able to keep the lights on, and at a =01&reasonable=018 price.
=  They=20 also need to sign some deals in light of the fact that the feds are very=20 unlikely to extend the DOE order forcing suppliers to sell to the IOUs.
On= ce=20 they=01,ve shown that they can manage the supply side, Peevey and Freeman s= aid=20 they want to quickly turn their attention to demand-side bidding.
These are the highlights.
I=01,d be happy to give more details on the Mond= ay=20 morning \call.
Best,