Chargeback

I have thoroughly reviewed the sections that Steve Hall referred me to on our
call, particularly section 5 of Schedule 2 (PX Clearinghouse, Credit
Policies, Business Practices and Banking) of the Cal PX FERC Electric Service
Tariff No. 2. Because of the former mandate that the IOUs (now excluding
SDG&E) buy power only from the PX, Edison and PG&E have procured ISO
real-time services, not directly, but through the PX's Core Services. To the
extent that any PX participant defaults on its payment obligation to the PX
for real-time ISO services and the default exceeds the sum of the (1)
participant's collateral (5.2.1), (2) the Pool Performance Bond (5.2.2), and
any set off from liquidating the defaulting participant's positions in the
DA, DO, and CTS markets, the remaining or residual default amount is
expressly chargeable to all other non-defaulting participants using the
proportional chargeback methodology of the tariff (5.3). This is different
from my conclusion from yesterday with respect to an Edison or PG&E default
in the CTS market solely for the reason that the proportional chargeback is
expressly provided for in the PX tariff for Core Services, while (as
explained in my 1/18/01 memo) it is not provided for in the CTS tariff or
rate schedule.

Some of the invoices that I have seen to some of our other clients simply
provide a lump sum proportional chargeback, without specifying whether it is
for Core Services, CTS or both. If you receive such an invoice, try to
confirm whether any of it is for a participant's default on a CTS obligation
and, if so, pay that amount (if at all) under protest.