RE: Enron's Advocacy in California

Jim,

We can talk at greater length if you want, but the quick answers to your questions are:

1. PX Credit: Make it simple and transparent. Best outcome would be no credit -- DA pays T&D costs only, as they appear in the tariff. Period, end of story.
2. The UDC Financial Hole: The more relief we can get from these items, the better. Duh. The small surcharge ($10) is currently factored into in our curves, so the hope is that whatever ultimately emerges from the sausage factory, the ultimate amount that they try to stick on DA customers is < $10. If our contract language ends up protecting us further, all the better, but I would prefer that not to be our last resort.

< -----Original Message-----
< From: Steffes, James D.
< Sent: Tuesday, October 09, 2001 7:43 PM
< To: Swain, Steve; Tribolet, Michael; Dasovich, Jeff
< Subject: Enron's Advocacy in California
<
< Steve --
<
< As you can see from the e-mail chain, we are now at a
< decision point on where we want to go with PG&E and SCE.
< With the progress of the PG&E bankruptcy and the SCE
< Settlement with the CPUC, it is important that we are all on
< the same page.
<
< Basically we need to make sure that our advocacy is
< consistent with our expected outcomes at the CPUC and with
< the nature of your business (both current and hopefully going
< forward).
<
< 1. Do you have a preferred outcome on the PX Credit mechanism?
< 2. Our advocacy on allocation of Utility Undercollection,
< CDWR long-term contracts, and Bonds to pay off CDWR current
< costs is that if a customer never was on DA they should be
< "free" of all of these costs. Following from that logic, we
< want to argue that customers who cause these buckets of costs
< for limited periods of time should only pay for those
< periods. We need to discuss the probable outcome of the
< assignment of these costs and Bob Williams' ideas on the
< "tax" passthru.
<
< I have attached Mike Smith's matrix on the outcome for each
< bucket of $$.
<
< Let's talk very soon. We are potentially moving forward with
< a SCE strategy.
<
< Jim
<
< << File: CA Surcharge Matrix 10-09.doc <<
<
<
<
< -----Original Message-----
< From: Steffes, James D.
< Sent: Tuesday, October 09, 2001 7:00 PM
< To: Williams, Robert C.; Dasovich, Jeff; Mara, Susan; Wu,
< Andrew; Smith, Mike; Sanders, Richard B.
< Subject: RE: $.01 surcharge as "tax"
<
< The EWS West Power URM desk will need to determine the $$ at
< stake and help us manage our financial exposure and the
< appropriate policy response. It's their $$. So far, my
< understanding from the desk is that our current policy
< recommendations (as outlined in the Mike Smith memo) are the
< "preferred" outcome - I'll reconfirm.
<
< Jim
<
< -----Original Message-----
< From: Williams, Robert C.
< Sent: Tuesday, October 09, 2001 5:25 PM
< To: Dasovich, Jeff; Mara, Susan; 'mday@gmssr.com'; Steffes,
< James D.; Wu, Andrew; Smith, Mike
< Subject: RE: $.01 surcharge as "tax"
<
< We could not do that. On the other hand, if we advocate that
< it should only apply to those who directly benefitted, and
< the CPUC adopts that reasoning, we would be shooting our tax
< argument in the foot. I think you are right that we need to
< understand the implications, both financially and
< contractually, of the options before the Commission.
<
< -----Original Message-----
< From: Dasovich, Jeff
< Sent: Tuesday, October 09, 2001 5:20 PM
< To: Williams, Robert C.; Mara, Susan; 'mday@gmssr.com';
< Steffes, James D.; Wu, Andrew; Smith, Mike
< Subject: RE: $.01 surcharge as "tax"
<
< Thanks. One other question, which seems like a legal
< question. Assume that Enron openly advocates for the PUC to
< apply the charges to all customers, including ours,
< understanding that our customers neither benefited from or
< caused the charges. If the PUC does it, and we go back to
< our customers and claim that an indirect tax has been
< applied, are we in any kind of bind for having pushed for it?
< I'm hoping that the answer is no. Thanks for the info.
<
< Best,
< Jeff
<
< -----Original Message-----
< From: Williams, Robert C.
< Sent: Tuesday, October 09, 2001 5:11 PM
< To: Dasovich, Jeff; Mara, Susan; 'mday@gmssr.com'; Steffes,
< James D.; Wu, Andrew; Smith, Mike
< Subject: FW: $.01 surcharge as "tax"
<
< a legal memo follows
<
< -----Original Message-----
< From: Williams, Robert C.
< Sent: Thursday, August 02, 2001 9:16 AM
< To: Mellencamp, Lisa; 'jklauber@llgm.com'
< Subject: FW: $.01 surcharge as "tax"
<
<
<
< -----Original Message-----
< From: Williams, Robert C.
< Sent: Friday, July 27, 2001 5:47 PM
< To: Sharp, Vicki
< Subject: $.01 surcharge as "tax"
<
< A typical clause reads as follows:
<
< " 'Taxes' means any and all new or existing governmental or
< quasi-governmental taxes, assessments, levies, duties, fees,
< charges and withholdings of any kind or nature whatsoever and
< howsoever described, including gross receipts, franchise,
< sales, use , property, excise, capital, stamp, transfer,
< employment, occupation, generatiion, privilege, Utility Taxes
< [separately defined to include "any and all franchise,
< utility, regulatory, BTU or energy, gross receipts,
< administrative services, municipality, and utility user taxes
< and similar taxes and energy resource and municipal land use
< surcharges and other similar surcharges"], regulatory, BTU,
< energy, consumption, lease, transaction, license, filing,
< recording, and activity taxes, levies, duties, fees, charges
< and withholdings, together with any and all penalties, fines,
< interest, and additions thereto, but excluding any taxes on
< the net income of EESI or any affilitates."
<
< Under the contracts the Buyer is usually responsible for
< taxes "applicable to Power at or after the Delivery Point"
< (the meter); the Seller is usually responsible for taxes
< "applicable prior to the Delivery Point." The surcharge
< would seem to be applicable "at the Delivery Point."
<
< Support for the argument that the surcharge is not a "tax"
< under the contracts:
<
< 1. The CPUC refers to it as a "rate increase"
<
< 2. It was not imposed by a governmental body (such as a
< state, county, or municipality)
<
< 3. When first implemented, all proceeds went to the utilities
<
< 4. It appears that a portion of the proceeds may
< continue to go to the utilities
<
< Support for the argument that the surcharge is a "tax" under
< the contracts:
<
< 1. Since the "frozen tariff" remains in place it is
< disingenuous to refer to it as a "rate increase"
<
< 2. It now appears that the proceeds will go to a
< governmental entity, the DWR
<
< 3. The definition of "taxes" under the contract is
< broad and includes surcharges of all types
<
< 4. To the extent the $.01 surcharge is to pay for
< generation for bundled customers, those on direct access
< receive, if anything, only an indirect benefit, which is
< similar in effect to a tax and not to a rate increase