Re: ISO Withholding Payment

I will be out of the office next week on Spring Break. Can you participate on
this call? Please report what is said to Christian Yoder 503-464-7845 or
Steve Hall 503-4647795

"A William Urquhart" <awu@quinnemanuel.com<
03/09/2001 05:48 PM

To: <GFergus@brobeck.com<, <dmbutz@butzdunn.com<,
<Richard.b.sanders@enron.com<, <jmorrissey@mdbe.com<, <ncregan@mdbe.com<,
<dpritchard@mofo.com<, <hmersel@mofo.com<, <JRoth@mofo.com<,
<lebiner@mofo.com<, <bcurrey@omm.com<, <mawilliams@omm.com<,
<jenniferbaldocchi@paulhastings.com<, <thord@perkinscoie.com<, "Harry Olivar"
<hao@quinnemanuel.com<, <paramfjord@stoel.com<, <ayudkowsky@stroock.com<
cc: <GErspamer@mofo.com<
Subject: Re: ISO Withholding Payment

I don't know, but I will check with our client.
<<< "Pritchard, Diane E." <dpritchard@mofo.com< 03/09/01 03:35PM <<<
Our client Avista Energy has received the communication, below, from the ISO
regarding withholding of payments to creditors of monies the ISO has
received from PG&E. We are interested in whether any of your clients have
received this communication, are interested in this issue and, if so,
whether you have any thoughts about how to proceed.

You are invited to participate in a conference call to discuss this issue on
Monday, March 12, at 10:00 a.m.

Call-in number: (888) 320-6636
Host: Pritchard
Confirmation number: 1827-1922

Diane Pritchard
Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105
(415) 268-7188
dpritchard@mofo.com

ISO Market Participants:

On March 7, 2001, the ISO distributed funds from the March 5 market
settlement of the December 2000 preliminary invoice. The ISO distributed a
total of $45,779,567.97, of which $352,693.64 was applied to outstanding
November balances, and $45,426,874.33 was applied to December balances, as
shown below. Total amounts payable to Market Participants related to the
December preliminary invoice were $1,490,781,469.67. Accordingly, the
preliminary pay-out ratio for December was 3.05%, and the cumulative
November pay-out was 24.22%.

Additionally, the ISO received $171,116,114.43 ($177 million less GMC
obligation) directly from PG&E. PG&E indicated the funds were to be applied
in payment of California Power Exchange ("Cal PX") obligations. The ISO has
been contacted by the Cal PX, and they have indicated they believe they are
entitled to such funds and that such funds are subject to a pending action
in federal court entitled "Enron Power Marketing, Inc. and Enron Corp. v.
California Power Exchange Corporation", Case No. 01-00901CM (Central
District of California. The Cal PX has indicated they plan to seek an
order within the next 7-10 days with the Court to have the funds transferred
to the Cal PX for deposit into an escrow account pursuant to Judge Moreno's
Preliminary Injunction. These funds are being held by the ISO in a
segregated interest bearing account pending resolution of this issue by that
court.

Payments were made in accordance with ISO Tariff Section 11 and Settlements
and Billing Protocol ("SABP") Section 6.

The following table provides an overview of the cash settlement:

----See Footnotes Which Follow---- Amount Owed Amount Paid to ISO
Default
Market Obligations:
California Power Exchange $1,442,285,801.01 $0.00
$1,442,285,801.01
Pacific Gas & Electric (also see note above) $13,103,456.51
$2,031,035.76 ($1,678,342.12 applied to December) $11,425,114.39
American Electric Power * $1,698,457.47 $602,777.42
$1,095,680.05
City of Santa Clara $31.56 $0.00 $31.56
Edison Mission Marketing $21.34 $0.00 $21.34
Illinova ** $2,360,888.94 $0.00 $2,360,888.94
Non Defaulting Parties: All Others $43,737,553.38 $43,737,553.38
$0.00
Subtotal $1,503,186,210.21 $46,371,366.56 $1,457,167,537.29

Total Payable from ISO for December $1,490,781,469.67

Total Distributions by ISO Applied to December $45,426,874.33 <--See Note
1
Pay-out Ratio 3.05%

Outstanding Balance (net of GMC & other adjustments)
$1,444,652,782.25

Grid Management Charge Obligations ("GMC"):
Bonneville Power Administration * $83.01 $0.00 $83.01
British Columbia Power Exchange * $278,212.68 $0.00 $278,212.68

Dynegy * $35,963.06 $0.00 $35,963.06
Illinova ** $4,011.80 $0.00 $4,011.80
New Energy * $50,605.46 $0.00 $50,605.46
Puget Sound * $101,783.73 $0.00 $101,783.73
Seattle City Power & Light * $7,116.22 $0.00 $7,116.22
Southern California Edison ** $114,022.63 $0.00 $114,022.63
Non Defaulting Parties: All Others $14,873,312.81 $14,873,312.81
$0.00
Subtotal $15,465,111.40 $14,873,312.81 $591,798.59

Total, Market and GMC Receivable $1,518,651,321.61
$61,244,679.37 $1,457,759,335.88

Note 1:
Collections (see above) $46,371,366.56
Less: GMC Shortfall collected from Market Funds
($591,798.59)
Less: December collections applied to November Payables
($352,693.64)

Total $45,426,874.33

Note *, **, *, ** * AEP is a creditor for November for an amount in excess
of December default amount. ** Illinova is a creditor for November for an
amount less than the December default amount. * Party has no remaining
GMC obligation after offset against amounts distributed. ** SCE and
Illinova remain in default for GMC obligation.

The distributions were made in accordance with the following tariff
provision:

11.16.1 Pro Rata Reduction of Payments.
If it is not possible to clear the ISO Clearing Account on a Payment
Date because of an insufficiency of funds available in the ISO Reserve
Account or by enforcing any guarantee, letter of credit or other credit
support provided by a defaulting Scheduling Coordinator, the ISO shall
reduce payments to all ISO Creditors proportionately to the net amounts
payable to them on the relevant Payment Data to the extent necessary to
clear the ISO Clearing Account. The ISO shall account for such reduction in
the ISO ledger accounts as amounts due and owing by the non-paying ISO
Debtor to each ISO Creditor whose payment was so reduced.

As noted above, certain parties have defaulted on their GMC obligations to
the ISO. The ISO has a priority claim to the collection of its GMC. As a
result of non-payment of the GMC by the parties listed above, the ISO
reduced the amounts payable to market participants by a total of $591,798.59
to satisfy the ISO's GMC obligation. This action was consistent with
Settlements and Billing Protocol section 6.3.1.3. Additionally, for those
parties who defaulted on their GMC obligation to the ISO, but who were to
receive funds from the market, the ISO has reduced their payout to reflect
their GMC default.

SABP 6.3.1.3
The ISO is authorized to instruct the ISO Bank to debit the ISO
Clearing Account and transfer to the relevant ISO account sufficient funds
to pay in full the Grid Management Charge falling due on any Payment Day in
priority to any other payments to be made on that or on subsequent days out
of the ISO Clearing Account.

Amounts collected from any party are first used to settle that party's
oldest outstanding amount payable, in accordance with SABP 6.10.4:

SABP 6.10.4
The ISO shall apply payments received in respect of amounts owing to
ISO Creditors to repay the relevant debts in the order of the creation of
such debts.

Accordingly, amounts received on 3/5/2001, were distributed to November 2000
and December 2000 creditors. Payments received from parties who defaulted
in November were first applied to their November balances. The $352,693.64
was distributed to creditors for the trade month of November 2000.

In accordance with Section 11.12 (and SABP 6.10.5) of the tariff, the ISO
will assess the defaulting parties interest at the ISO Default Interest Rate
(currently 10.5%: prime plus 2%).

Certifications are required by Section 11.20.2 of the tariff. Accordingly,
the ISO will provide such certification to ISO creditors.

11.20.2 Evidence of Unpaid Amount.
The ISO shall, on request, certify in writing the amounts owed by an
ISO Debtor that remain unpaid and the ISO Creditors to whom such amounts are
owed and shall provide certified copies of the relevant Preliminary and
Final Settlement Statements, invoices, and other documentation on which the
ISO's certificate was based to the ISO Debtor and the relevant ISO
Creditors. An ISO certificate given under this Section 11.20.2 may be used
as prima facie evidence of the amount due by an ISO Debtor to ISO Creditors
in any legal proceeding.

The ISO will report further details on this situation when available.

Philip Leiber
ISO Treasurer and Director of Financial Planning
(916) 351-2168

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