Interventions in Tuscon Complaint Proceeding

Just a reminder that interventions and comments in this proceeding are due
next Monday, March 19th. This case concerns a complaint filed by Tuscon
Electric challenging Governor Davis' and the state of California's
commandeering of the BFM contracts of SCE and PG&E. The complaint argues
that the contracts belong to interstate markets and are beyond the reach of
the state's eminent domain powers.

While the complaint is consistent with arguments that we have made in the
past on many issues, I am not clear whether, on a commercial level, EPMI is
upset that the Governor commandeered the contracts. My surface analysis is
that the state is unlikely to pay fair value for the contracts and thus, if
this is the only consideration, we would be better off if the contracts are
returned to the PX to use as collateral on SCE's and PG&E's defaults (thereby
mitigating chargeback exposure). I am not in position, however, to evaluate
whether EPMI sees a commercial advantage in buying these contracts from DWR
as opposed to buying them back from the PX under the liquidation procedures
announced by the PX before the contracts were commandeered. FYI, the PX's
procedures gave counterparties (such as EPMI) first opportunity to buy the
contracts; when SCE protested this method, we intervened in support of the
PX's proposal.

We have three courses of action: (1) file a plain vanilla intervention; (2)
intervene and file short comments in support of the complaint; or (3) do
nothing. Since interventions and comments are due on Monday, please advise
as soon as possible which course you prefer. I am available in my office
(202-828-5872) to discuss.

Thanks. Ron