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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: Phillip K Allen X-To: Mike Grigsby, Keith Holst X-cc: X-bcc: X-Folder: \Phillip_Allen_June2001\Notes Folders\Discussion threads X-Origin: Allen-P X-FileName: pallen.nsf ---------------------- Forwarded by Phillip K Allen/HOU/ECT on 01/31/2001= =20 07:12 AM --------------------------- Susan J Mara@ENRON 01/30/2001 10:10 AM To: Alan Comnes/PDX/ECT@ECT, Angela Schwarz/HOU/EES@EES, Beverly=20 Aden/HOU/EES@EES, Bill Votaw/HOU/EES@EES, Brenda Barreda/HOU/EES@EES, Carol= =20 Moffett/HOU/EES@EES, Cathy Corbin/HOU/EES@EES, Chris H Foster/HOU/ECT@ECT,= =20 Christina Liscano/HOU/EES@EES, Christopher F Calger/PDX/ECT@ECT, Craig H=20 Sutter/HOU/EES@EES, Dan Leff/HOU/EES@EES, Debora Whitehead/HOU/EES@EES,=20 Dennis Benevides/HOU/EES@EES, Don Black/HOU/EES@EES, Dorothy=20 Youngblood/HOU/ECT@ECT, Douglas Huth/HOU/EES@EES, Edward=20 Sacks/Corp/Enron@ENRON, Eric Melvin/HOU/EES@EES, Erika Dupre/HOU/EES@EES,= =20 Evan Hughes/HOU/EES@EES, Fran Deltoro/HOU/EES@EES, Frank W=20 Vickers/HOU/ECT@ECT, Gayle W Muench/HOU/EES@EES, Ginger=20 Dernehl/NA/Enron@ENRON, Gordon Savage/HOU/EES@EES, Harold G=20 Buchanan/HOU/EES@EES, Harry Kingerski/NA/Enron@ENRON, Iris Waser/HOU/EES@EE= S,=20 James D Steffes/NA/Enron@ENRON, James W Lewis/HOU/EES@EES, James=20 Wright/Western Region/The Bentley Company@Exchange, Jeff Messina/HOU/EES@EE= S,=20 Jeremy Blachman/HOU/EES@EES, Jess Hewitt/HOU/EES@EES, Joe=20 Hartsoe/Corp/Enron@ENRON, Karen Denne/Corp/Enron@ENRON, Kathy=20 Bass/HOU/EES@EES, Kathy Dodgen/HOU/EES@EES, Ken Gustafson/HOU/EES@EES, Kevi= n=20 Hughes/HOU/EES@EES, Leasa Lopez/HOU/EES@EES, Leticia Botello/HOU/EES@EES,= =20 Mark S Muller/HOU/EES@EES, Marsha Suggs/HOU/EES@EES, Marty Sunde/HOU/EES@EE= S,=20 Meredith M Eggleston/HOU/EES@EES, Michael Etringer/HOU/ECT@ECT, Michael=20 Mann/HOU/EES@EES, Michelle D Cisneros/HOU/ECT@ECT, Mike M Smith/HOU/EES@EES= ,=20 mpalmer@enron.com, Neil Bresnan/HOU/EES@EES, Neil Hong/HOU/EES@EES, Paul=20 Kaufman/PDX/ECT@ECT, Paula Warren/HOU/EES@EES, Richard L=20 Zdunkewicz/HOU/EES@EES, Richard Leibert/HOU/EES@EES, Richard=20 Shapiro/NA/Enron@ENRON, Rita Hennessy/NA/Enron@ENRON, Robert=20 Badeer/HOU/ECT@ECT, Roger Yang/SFO/EES@EES, Rosalinda Tijerina/HOU/EES@EES,= =20 Sandra McCubbin/NA/Enron@ENRON, Sarah Novosel/Corp/Enron@ENRON, Scott=20 Gahn/HOU/EES@EES, Scott Stoness/HOU/EES@EES, Sharon Dick/HOU/EES@EES,=20 skean@enron.com, Susan J Mara/NA/Enron@ENRON, Tanya Leslie/HOU/EES@EES, Tas= ha=20 Lair/HOU/EES@EES, Ted Murphy/HOU/ECT@ECT, Terri Greenlee/NA/Enron@ENRON, Ti= m=20 Belden/HOU/ECT@ECT, Tony Spruiell/HOU/EES@EES, Vicki Sharp/HOU/EES@EES,=20 Vladimir Gorny/HOU/ECT@ECT, Wanda Curry/HOU/EES@EES, William S=20 Bradford/HOU/ECT@ECT, Jubran Whalan/HOU/EES@EES, triley@enron.com, Richard = B=20 Sanders/HOU/ECT@ECT, Robert C Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT,= =20 dwatkiss@bracepatt.com, rcarroll@bracepatt.com, Donna=20 Fulton/Corp/Enron@ENRON, gfergus@brobeck.com, Kathryn=20 Corbally/Corp/Enron@ENRON, Bruno Gaillard/EU/Enron@Enron, Linda=20 Robertson/NA/Enron@ENRON, Phillip K Allen/HOU/ECT@ECT, Ren, Lazure/Western= =20 Region/The Bentley Company@Exchange, Michael Tribolet/Corp/Enron@Enron,=20 Phillip K Allen/HOU/ECT@ECT, Christian Yoder/HOU/ECT@ECT, Richard B=20 Sanders/HOU/ECT@ECT, jklauber@llgm.com, Tamara Johnson/HOU/EES@EES, Robert = C=20 Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: =20 Subject: Highlights of Executive Summary by KPMG -- CPUC Audit Report on=20 Edison ----- Forwarded by Susan J Mara/NA/Enron on 01/30/2001 10:02 AM ----- =09"Daniel Douglass" <Douglass@ArterHadden.com< =0901/30/2001 08:31 AM =09=09=20 =09=09 To: <Barbara_Klemstine@apsc.com<, <berry@apx.com<, <dcazalet@apx.com= <,=20 <billr@calpine.com<, <jackp@calpine.com<, <glwaas@calpx.com<,=20 <Ken_Czarnecki@calpx.com<, <gavaughn@duke-energy.com<,=20 <rjhickok@duke-energy.com<, <gtbl@dynegy.com<, <jmpa@dynegy.com<,=20 <jdasovic@enron.com<, <susan_j_mara@enron.com<, <Tamara_Johnson@enron.com<,= =20 <curt.Hatton@gen.pge.com<, <foothill@lmi.net<, <camiessn@newwestenergy.com<= ,=20 <jcgardin@newwestenergy.com<, <jsmollon@newwestenergy.com<,=20 <rsnichol@newwestenergy.com<, <Curtis_L_Kebler@reliantenergy.com<,=20 <rllamkin@seiworldwide.com< =09=09 cc:=20 =09=09 Subject: CPUC Audit Report on Edison The following are the highlights from the Executive Summary of the KPMG aud= it=20 report on Southern California Edison: =20 I. Cash Needs Highlights: SCE=01,s original cash forecast, dated as December 28, 2000, projects a com= plete=20 cash depletion date of February 1, 2001. Since then SCE has instituted a=20 program of cash conservation that includes suspension of certain obligation= s=20 and other measures.=20 Based on daily cash forecasts and cash conservation activities, SCE=01,s=20 available cash improved through January 19 from an original estimate of $51= .8=20 million to $1.226 billion. The actual cash flow, given these cash=20 conservation activities, extends the cash depletion date. II. Credit Relationships Highlights: SCE has exercised all available lines of credit and has not been able to=20 extend or renew credit as it has become due. At present, there are no additional sources of credit open to SCE. SCE=01,s loan agreements provide for specific clauses with respect to defau= lt.=20 Generally, these agreements provide for the debt becoming immediately due a= nd=20 payable. SCE=01,s utility plant assets are used to secure outstanding mortgage bond= =20 indebtedness, although there is some statutory capacity to issue more=20 indebtedness if it were feasible to do so. Credit ratings agencies have downgraded SCE=01,s credit ratings on most of = its=20 rated indebtedness from solid corporate ratings to below investment grade= =20 issues within the last three weeks. III. Energy Cost Scenarios Highlights This report section uses different CPUC supplied assumptions to assess=20 various price scenarios upon SCE=01,s projected cash depletion dates. Under= such=20 scenarios, SCE would have a positive cash balance until March 30, 2001. IV. Cost Containment Initiatives Highlights SCE has adopted a $460 million Cost Reduction Plan for the year 2001. The Plan consists of an operation and maintenance component and a capital= =20 improvement component as follows (in millions): Operating and maintenance costs $ 77 Capital Improvement Costs 383 Total $ 460 The Plan provides for up to 2,000 full, part-time and contract positions to= =20 be eliminated with approximately 75% of the total staff reduction coming fr= om=20 contract employees. Under the Plan, Capital Improvement Costs totaling $383 million are for the= =20 most part being deferred to a future date. SCE dividends to its common shareholder and preferred stockholders and=20 executive bonuses have been suspended, resulting in an additional cost=20 savings of approximately $92 million. V. Accounting Mechanisms to Track Stranded Cost Recovery (TRA and TCBA=20 Activity) Highlights: As of December 31, 2000, SCE reported an overcollected balance in the=20 Transition Cost Balancing Account (TCBA) Account of $494.5 million. This=20 includes an estimated market valuation of its hydro facilities of $500=20 million and accelerated revenues of $175 million. As of December 31, 2000, SCE reported an undercollected balance in SCE=01,s= =20 Transition Account (TRA) of $4.49 billion. Normally, the generation memorandum accounts are credited to the TCBA at th= e=20 end of each year. However, the current generation memorandum account credit= =20 balance of $1.5 billion has not been credited to the TCBA, pursuant to=20 D.01-01-018. Costs of purchasing generation are tracked in the TRA and revenues from=20 generation are tracked in the TCBA. Because these costs and revenues are=20 tracked separately, the net liability from procuring electric power, as=20 expressed in the TRA, are overstated. TURN Proposal As part of our review, the CPUC asked that we comment on the proposal of TU= RN=20 to change certain aspects of the regulatory accounting for transition asset= s.=20 Our comments are summarized as follows: The Proposal would have no direct impact on the cash flows of SCE in that i= t=20 would not directly generate nor use cash. The Proposal=01,s impact on SCE=01,s balance sheet would initially be to sh= ift=20 costs between two regulatory assets. TURN=01,s proposal recognizes that because the costs of procuring power and= the=20 revenues from generating power are tracked separately, the undercollection = in=20 the TRA is overstated. VI. Flow of Funds Analysis Highlights: In the last five years, SCE had generated net income of $2.7 billion and a= =20 positive cash flow from operations of $7 billion. During the same time period, SCE paid dividends and other distributions to= =20 its parent, Edison International, of approximately $4.8 billion. Edison International used the funds from dividends to pay dividends to its= =20 shareholders of $1.6 billion and repurchased shares of its outstanding comm= on=20 stock of $2.7 billion, with the remaining funds being used for administrati= ve=20 and general costs, investments, and other corporate purposes. [there is no Section VII] =20 VIII. Earnings of California Affiliates SCE=01,s payments for power to its affiliates were approximately $400-$500= =20 million annually and remained relatively stable from 1996 through 1999.=20 In 2000, the payments increased by approximately 50% to over $600 million.= =20 This increase correlates to the increase in market prices for natural gas for the same period. A copy of the report is available on the Commission website at=20 www.cpuc.ca.gov. =20 Dan
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