From:	Parquet, David
Sent:	Monday, September 24, 2001 1:31 PM
To:	Calger, Christopher F.; Etringer, Michael; Elafandi, Mo; Gray, Stan; Mays, Wayne; Mcdonald, Michael; Shields, Jeff; 'allanori@aol.com'; 'russeth@home.com'; Qureishi, Ibrahim
Subject:	DC Line to SF
I thought I would summarize what I see to be the status and action items re this opportunity.  I have summarized the options considered, some of the meetings and telecons we have had re the opportunity, the action items we discussed at our last meeting as well as a possible future strategy.  Anybody feel free to add, subtract, criticize or augment.  The DC line continues to ring my bell.

How about as soon as we have notice that Wayne Mays has completed the deal with ABB, and before we meet or discuss this deal with them on Thursday, lets get on the phone to review the whole thing so that everyone has crystallized in their minds the same action items, strategies, issues, questions, etc.

Wayne - let me know as soon as you have done that.

1.	OPTIONS CONSIDERED

In considering "what problem are we trying to solve" with the DC line to SF idea, we determined that the problem was that SF  was:
	-	A load pocket
	-	In an "inactive" congestion zone, which if ever activated (as the ISO proposed last year with their congestion management proposals), would take away the subsidy that the rest of the ratepayers in NP-15 were paying for SF customers.  Obviously, this is at least a political problem for SF
	-	Subject to the market power of Mirant with their 350MW Potrero project, and the market power will increase with the expansion to 850 MW.
	-	Subject to unreliable power because of weak transmission system into SF.  (Remember, SF was blacked out last year due to a simple mistake that played to this weakness.)
	-	Extremely concerned with emissions and other environmental issues at Hunters Point and Potrero Hill.  Environmental racism is openly discussed, given the nature of the communities in the areas of the two projects.

Our thought was that SF would be interested in an alternative to the presently available proposals.  These proposals and their features, benefits, issues are:

	A.	NEW AC LINE FROM JEFFERSON SUB (REDWOOD CITY) TO MARTIN SUB (SF)
		-	"Business as usual" solution being implemented by PG&E.  I believe that ISO has approved.
		-	On line date estimate of 2009, probably due to running the line some 30 miles through very expensive home area as well as very environmentally sensitive areas. 
		-	In study phase now
		-	Anticipated $109 million cost
		-	Allows Hunters Point to be shut down

	B.	POTRERO EXPANSION FROM 350MW TO 850MW
		-	CEC app now underway by Mirant for 500MW expansion.  Lot's of controversy for environmental and other reasons.
		-	Even though an additional 500MW in SF should allow Hunters Point to be shut down, ISO may not allow it.  "Uncharitable" comment is that a "350MW market power problem is being replaced by a 850MW market power problem."
		-	Port of SF has a key approval (land right of some sort.).  I believe it was the SF Board of Sups who overruled the Port to subvert the AES project some years back.  Politics just as bad or worse today.  Energy crisis issues losing steam.
		-	There is an agreement between PG&E that Hunters Point will be shut down when Potrero is expanded.  "Catch 22."

	C.	300 - 500MW EXPANSION AT SFO AIRPORT
		-	100MW expansion now underway by ATCO, a Canadian company:  50MW by SF and 50MW by Cal Power Authority
		-	Notwithstanding our thought that an additional expansion by 300 - 500 MW could solve the SF's Hunters Point problem, according to Ed Smeloff, Willy Brown's chief in charge of getting SF in the power business, SF has no plans of expanding this facility past 100MW.  Perhaps El Paso's failed efforts to site a 500MW plant was it for SF.  If this is indeed true, the DC line only has two controversial opponents:  the 8 year PG&E power line through sensitive terrain, and the very controversial Mirant expansion.  Great.  (But, we must be cognizant of other projects that may get some legs.)

	D.	350MW DC LINE FROM SOBRANTE TO SF
		-	Line would go through BART tube, along BART R.O.W. and then about 3.3 miles along Orinda city streets to Sobrante sub.  This was determined by Stan as a good route and matches up with an AC Line alternative studied by ISO/PG&E/SF study group last year.  For various reasons, AC did not work:  EMF, expensive, overhead power lines, etc.
		-	No EMF issues.  DC probably does not mess up train signals as AC possibly does, if one was to think that AC line could have provided a more customary solution.
		-	Because DC line can "pump" power, it "looks" like a load at Sobrante and a power plant at SF.  Sobrante is a strong substation.
		-	Without mentioning DC line, discussion with ISO indicates no "policy decision" against long term RMR or other revenue contracts.  ISO indicates, curiously, Mirant is resisting long term RMR contract for Potrero.
		-	Technical and cost issues open, awaiting agt with ABB
		-	Would allow shut down of Hunters Point.  If DC Line could be upsized to ~500MW, possibly could subvert Mirant's Potrero expansion.
		-	No emissions, a huge advantage we can tout to differentiate ourselves from Potrero expansion and Hunters Point problems.

2.	OTHER INTERESTING MEETINGS AND ISSUES BENEFITTING DC LINE

	A.	ISO TELECON - I talked to Jim Detmers, VP Ops.  As indicated above, no policy decision against a long term contract.  I indicated that "we had an idea" that looked cheaper and more beneficial than public alternatives, but did not know how we could get paid.  Clear interest in working with us.  We have that avenue, when timely.  I would probably bring Terry Winter into the conversation.  

	B.	ED SMELOFF MEETING - Jeff Shields, Mike McDonald and I met with Ed Smeloff, Willy Brown's chief consultant in charge of getting SF into the utility business.  We learned:
		-	2 initiatives on ballot for November election.  He feels both will pass.  One creates a charter amendment putting SF in muni business.  Other sets up a Municipal Utility District with Brisbane.  Both initiatives acommodate the other.  Result if both pass will be a conference committee which would put a SF utility in business ~May, 2002.  Anticipate a separate, independent department of the city of SF.  Independent board, elected by public.  Able to raise money, charge customers on cost based rates, etc.  Only emminent domain will not be available to new muni, that being retained by city of SF.
		-	Muni will not combine with Hetch Hetchy, as there are complications with TID and MID re excess power.
		-	We asked where SF muni would like to be 5 years out.    He indicated:  
			-	$100 Million already approved for renewables.  Jeff questioned whether out-of-city alternatives could be pursued, if wheeled in.  Ed indicated he preferred in-city solutions.
			-	As with all cities, SF likes distributed generation and new muni will support.  He sees progress with PG&E with better standby rates than were historically the case
			-	He hoped the 100MW project at SFO was up and running well.  Said extra 50 MW over SF needs at SFO were at the specific request of Freeman.
			-	He was aware of PG&E's AC line from Redwood City to Martin Sub on southern border of SF.  Said that they would like to take power there, expand muni owned transmission down new light rail through Mission Bay, a redevelopment area in southern SF.  They would take any new customers in area.  This is clearly favorable for DC Line as SF has in its plan the ownership of power lines.
			-	No real interest in condeming PG&E dist system in SF, especially given "rebuttable presumption" previsions in a 1992 law.  However, they clearly want PG&E's distribution system and what I heard was that they may be negotiating something with them for this result.  Mike and Jeff, what did you hear?
			-	We intimated that we had an idea, but it was premature to discuss now.  However, we discussed the basic arrgt we had with City of Pittsburg:  we spend the money, we take the risk, no city general fund obligation.  If successful we get our costs, a development fee and we split the profit of the enterprise on a basis favorable to the city.  Possibly, we would work our way into a commodity contract.  No agt., obviously, but he seemed favorably disposed.
			-	He was aware of the Mirant expansion.  Clear that the market power issue is a problem for SF.
			-	Ed did not feel there would be a problem in doing business with Enron.  "Willy Brown is a pretty pragmatic guy."  (Yea, but I think we should remember that Willy is politically right of the rest of the board of Sups today.)

	C.	TELECON WITH STEVE KEAN - I found out that Steve and Andy Fastow had had a meeting with Willy Brown a few weeks ago; I called to find out Willy's temperature toward Enron.  Interesting conversation.  Willy is on board of Calpers and meeting, which included senior execs and other board members of Calpers, was for purpose of Calpers' review of energy investment portfolio, which includes Enron projects as well as other energy company projects.  Ken Lay, who has known Willy for years it seems, was also at meeting.  Steve indicated:
		-	Ken and Willy have alot of respect for each other.  Steve, after hearing about our idea, thought we should consider using Ken to introduce concept to Willy.  Based on my description of features and benefits of DC line, there would be great PR value to Enron.  I told him we have alot of homework to do prior to considering that.
		-	Willy indicated that of all of the energy companies, Enron is the only one with a long term strategy, and is willing to talk about it.  
		-	According to Steve, Calpers is thoroughly happy with Enron and its joint investments with Enron.
		-	Steve indicated, however, that Willy was clear that the "politics of blame" in California against Enron are going to continue.  "That is just the way it works."   Pretty irritating.

	D.	DRIVE BY BART AND ORINDA - Allan Thompson and I drove the BART line, where we could, as well as the ~3.25 miles along Orinda city streets to the Sobrante Sub.  
		-	Re the BART line, looked like it would be OK in our naive minds to hang a 5" cable on the fence or, alternatively, to bury it in the ROW along the tracks.  It was clear that there were other utilities along the ROW.
		-	Re the Orinda streets, the road from the BART tracks to the Sobrante sub is entirely within the city of Orinda.  The road is a wide 4 lane road separated by a double yellow line.  There are wide shoulders on both sides and on one side there is a separate paved bike trail most of the way.  Even if it cost, say, $1-2 million per mile, this would not be a significant expense, considering.  Looks like there is lots of room.  Traffic would be a problem, but looks doable. 
		-	Re the Sobrante Sub, there is lots of open space around the sub.  Even looks like there is lots of room inside the fence.

3.	ACTION ITEMS

	A.	GET ABB EXCLUSIVITY/CA DEAL DONE.  Wayne Mays/Mike Etringer

	B.	DEVELOP Q&A RE ABB DC LINE.  Stan Gray
		-	Can we put line in BART tube?  Along R.O.W?
		-	Estimated cost?
		-	Does DC line screw up train signals?
		-	Other

	C.	INVESTIGATE PERMITTING ISSUES.  ASSUME FERC?  Mike Etringer

	D.	INVESTIGATE "DOING BUSINESS WITH SF" ISSUES.  Dale Rasmussen  (David Thompson stands ready to assist if requested.)

	E.	DETERMINE BEST SUB TO TERMINATE DC LINE IN - EMBARCARDERO OR HUNTERS POINT OR OTHER.  Stan Gray

	F.	BEGIN TO DEVELOP PRESENTATION.  Mike Etringer/ Mo Elafandi/David Parquet

	G.	DEVELOP PR STRATEGY AND MESSAGE.  Kathy Russeth/David Parquet 

	H.	DEVELOP DEAL STRATEGY.  David Parquet/Mike McDonald/Chris Calger/Mike Etringer

	I.	FIND OUT "EVERYTHING" ABOUT BART: GOV STRUCTURE, OFFICERS, DIRECTORS, ETC.  Ibrahim Qureishi

	J.	PRELIMINARY MEETING WITH CITY TO ASSESS.  Done

	K.	PRELIMINARY DISCUSSION WITH ISO.  Done

	L.	PRELIMINARY EVALUATION OF ALTERNATIVES.  Done

4.	PROBABLE FUTURE STRATEGY

Based on all we have learned to date, and assuming the ABB meetings and discussions go well and indicate that we do indeed continue to have a good idea here, and neither the FERC nor the SF nor other issues are insurmountable, I think we should consider in order:

	A.	FIRMING UP THE STRATEGY, COSTS, RESPONSEs TO ISSUES

	B.	NEXT APPROACHING, PROBABLY "SIMULTANEOUSLY", THE ISO AND SF WITH POTENTIAL DEAL STRUCTURES AND APPROACHES.  
		-	The ISO because they probably hold the key to a nice revenue enhancement.  And, they are in charge of grid reliability.  Further, we may be able to sweeten the perception deal for them by letting them operate the line.  By law, they cannot own it.  I have a very good relationship with ISO and believe that we have high likelihood of keeping this quiet for at least some period of time, if we desire.
		-	SF because Willy probably holds the key to the politics.  Further, probably makes most sense for SF to eventually own the line.  We can make Willy a hero re a "silver platter" deal (revenue from ISO) that obviates the need for environmentally irritating Potrero and Hunters Point.  Need to develop approach strategy, and consider the Ken/Willy connection. 

	C.	THEN APPROACHING BART, SHORTLY AFTER ISO AND SF, USING ISO AND SF INPUT TO QUICKLY DEVELOP STRATEGY.

	D.	FINALLY APPROACHING CITY OF ORINDA.  Allan Thompson lives there and is good friends with Mayor.

	E.	CONSIDER APPROACHING CALIFORNIA POWER AUTHORITY AND PG&E AT THE RIGHT TIME.	
		-	CPA, because they, vs the ISO, may hold the key to the revenue contract, given changing CA climate
		-	PG&E, because they must complete an interconnect study for the DC Line