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Not necessarily for purposes of discussion on the SCE call, but for later
reference if we have to fight SCE over the justification for their crediting proposal, I want to chime in with my critique of SCE's analysis. First of all, their example does not properly characterize the obligations of the direct access customers. A Direct access customer (with the same hypothetical load as in the SCE example) did not pay the same $60 toward SCE's procurement costs and transition recovery, they paid a lesser sum, $60 minus the actual PX costs for that billing cycle. What the direct access customer paid (assuming the PX costs were $30), was a contribution directly to CTC transition cost recovery, in this case $30. When the price of energy exceeded the 6 cents in bundled rates for procurement and transition cost recovery, the utility does begin to build an undercollection from its bundled customers, and the entire $80 undercollection in the SCE example relates to the cost of power purchased for the bundled customer but not recovered in rates. The same is NOT TRUE for the direct access customer. The negative credit provided to the direct access customer is the same as the underrecovery from the bundled service customer, in this case $80. However, for the direct access customer, this amount has nothing to do with power purchased by the utility for the DA customer, and represents essentially a credit against amounts overpaid toward the utility's CTC recovery in earlier periods. This is one of the many perverse effects of the residual CTC collection mechanism. If a fixed CTC contribution had been established from Day 1, direct access customers could have continued to pay that fixed contribution, also pay their $40 share of the utility T&D costs, and would not have had any role in creating the utility's undercollection. However, because the CTC calculation was a residual calculation: the generation component of the frozen rates less the actual PX costs = CTC (which later became negative) direct access customers' contribution to CTC was dependent on the utility's procurement risk in the market compared to the generation component in frozen rates. This was also consistent with the notion contained in AB 1890 and the Edison MOU that the utility bore the risk of power price volatility in recovering its CTC. In order for direct access customers to contribute to CTC symmetrically with bundled customers, when bundled customers no longer contributed to CTC (because of high power costs) and in fact REDUCED the CTC collected (the power cost undercollection was to have been paid first before CTC was booked, but the PUC did not properly account for this until it adopted the TURN accounting adjustment), then the CTC contribution of direct access customers had to be proportionately reduced, and that is the function of the negative CTC credit. Thus, a reduction in the CTC contribution of direct access customers to ensure they paid the same proportionate share of CTC as bundled customers is NOT a matter which SCE is entitled to recover after the fact because they sustained an undercollection of power costs. The undercollection of power costs was entirely their risk, and direct access customers paid their fair share of CTC and that is all they had to pay, period. The fact that they paid less than SCE expected because the high power costs generated a lot of negative CTC credits at the end of the transition period is one more risk that the utilities assumed when they selfishly and foolishly promoted a residual CTC calculation instead of a fixed transition cost recovery system as was used in most other states. SCE is entitled to NO recovery of its undercollection from direct access customers. As you can tell, I am more than willing to discuss this ad infinitum. If you have questions, please call or email. Mike Day -----Original Message----- From: Steffes, James D. [mailto:James.D.Steffes@ENRON.com] Sent: Wednesday, October 31, 2001 1:19 PM To: Mara, Susan; Dasovich, Jeff; Mellencamp, Lisa; Tribolet, Michael; Huddleson, Diann; Swain, Steve; Curry, Wanda; mday@gmssr.com Subject: RE: Sue's Retort to SCE's Premise -----Original Message----- From: Mara, Susan Sent: Wednesday, October 31, 2001 2:36 PM To: Dasovich, Jeff; Steffes, James D.; Mellencamp, Lisa; Tribolet, Michael; Huddleson, Diann; Swain, Steve; Curry, Wanda; 'mday@gmssr.com' Subject: Sue's Retort to SCE's Premise Importance: High I don't agree Edison's premise -- that "direct access customers contributed just as much to SCE's procurement costs undercollection as bundled service customers." We need to make clear that we don't buy in to their rhetoric. Here's my reasoning. DA Customers are completely different from bundled customers. SCE had to buy power to serve the bundled load. SCE did not buy power for DA customers. SCE's purchases of the power to serve the bundled load coupled with high wholesale prices and an inability to raise rates was the direct reason for the undercollection. I can make the argument that the undercollection is SOLELY related to BUNDLED SERVICE. There are two big reasons that back me up: AB 1890 and Top-down rates. I will explain. The utilities got what they wanted out of AB 1890 -- payments of $30 plus billion in so-called stranded costs and a real delay in any competitive retail market until their costs were paid off. One of the tradeoffs, however, was that the utilities were at risk FOR HIGH PRICES in the WHOLESALE MARKET. Everyone understood that if there were high gas prices or bad hydro years, the utilities would be squeezed and not collect their billions by the 3/31/01 deadline. That's the risk they agreed to. Now, they are claiming that they were ENTITLED to that money and more. This is in direct conflict with the statute. I can make the argument that the statute requires SCE to assume this risk and therefore any undercollection is theirs alone -- now the CPUC can bail them out -- but that doesn't make ESPs subject to any presumed "undercollection." Now to the rates. At the beginning of DA, the utilities did not want to do a real rate case and separate the costs of the wholesale business and the retail busness from T&D. So, they did a "top-down" calculation. This meant that there had to be a "credit" put on the bills of DA customers to account for the costs the utility avoided by having the customers switch to DA. So, the PX Credit structure was a direct result of the utilities unwillingness to unbundle specific components of the rates. Next, although bundled customers rates were capped, the decisions from the CPUC made it clear that there was no similar cap for DA customers -- their rates and bills would be whatever was charged by their ESPs. However, when the utilities filed their tariffs with the CPUC, they added a cap for the PX credit that was neither proposed nor authorized by the Commission. Enron attacked it, but got nowhere, until WPTF and Enron brought it up in the 1998 RAP Proceeding. Our argument was that the bundled rates were capped but not the bills of DA customers -- and the credit was supposed to represent the full costs the utilities avoided by not serving DA customers. We argued that anything less is fundamentally unfair and anticomeptitive. The utilities must have thought we had a good case, because they agreed to settle. The settlement was accepted by the Commission in the proceeding. Everyone understood that eliminating the cap on the PX Credit was primarily to allow the PX Credit to FLOAT ABOVE THE CAP when wholesale prices were high. So, we have a legal right to receive the full PX Credit/Negative CTC which is separate and distinct from any undercollection associated with bundled customers. It seems as if we should be able to prosecute this legal right. (keeping in mind I am not an attorney) In summary, we have leverage and should use it. Sue -----Original Message----- From: Dasovich, Jeff Sent: Wednesday, October 31, 2001 11:12 AM To: Mara, Susan; Steffes, James D.; Mellencamp, Lisa; Tribolet, Michael; Huddleson, Diann; Swain, Steve; Curry, Wanda; 'mday@gmssr.com' Subject: Proposal Edison Is Distributing to ESPs FYI. -----Original Message----- From: Matt.Pagano@sce.com [mailto:Matt.Pagano@sce.com] Sent: Wednesday, October 31, 2001 1:05 PM To: Dasovich, Jeff Subject: DA Credit Hi Jeff, Please find below SCE's proposal to settle past Direct Access Credit issues and determine the Direct Access Credit going forward. Please forward this to any other Enron participants to review prior to our conference call with John Fielder, November 1, 2001, 11:00 a.m. PST. (See attached file: DA Proposal.doc) Thanks. Matt Pagano Account Manager ESP Services Division tel-714-895-0222 fax-714-895-0347 Email-Paganomj@SCE.Com ********************************************************************** This e-mail is the property of Enron Corp. and/or its relevant affiliate and may contain confidential and privileged material for the sole use of the intended recipient (s). Any review, use, distribution or disclosure by others is strictly prohibited. If you are not the intended recipient (or authorized to receive for the recipient), please contact the sender or reply to Enron Corp. at enron.messaging.administration@enron.com and delete all copies of the message. This e-mail (and any attachments hereto) are not intended to be an offer (or an acceptance) and do not create or evidence a binding and enforceable contract between Enron Corp. (or any of its affiliates) and the intended recipient or any other party, and may not be relied on by anyone as the basis of a contract by estoppel or otherwise. Thank you. **********************************************************************
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