RE: One Other Note on Stranded Costs

Let me make sure I understand this. Prior to April 2002, the UDCs want the=
ir QF costs to be as low as possible, since this will cause the PX credit t=
o be lower and thus the positive CTC higher. However, beginning April 2002=
, they pray for just the opposite -- the greater their QF costs, the more t=
hey can collect from DA customers to help pay for the QFs.
=20
I truly hope I have misunderstood you, else my brain may explode.
=20
=20

-----Original Message-----=20
From: Steffes, James D.=20
Sent: Mon 8/13/2001 5:08 PM=20
To: Swain, Steve; Mara, Susan=20
Cc:=20
Subject: One Other Note on Stranded Costs

Steve --=20

As Sue highlights below, when people talk about stranded costs ending no la=
ter than 3/31/02, they are only speaking about generation-related stranded =
costs. Above market costs for QFs will be "collected" from DA customers fo=
r some time into the future. Wanted to make sure that this was clear.

Jim=20

-----Original Message-----=20
From: Mara, Susan =20
Sent: Monday, August 13, 2001 12:27 PM=20
To: Curry, Wanda; Swain, Steve; Mellencamp, Lisa; Steffes, James D.; Ru=
ffer, Mary Lynne; Tribolet, Michael; Huddleson, Diann

Cc: Gorny, Vladimir; Bradford, William S.; Kingerski, Harry; Savage, Go=
rdon; Tribolet, Michael=20
Subject: RE: Summary or PX Credit Proposals=20

An update from the meeting we had with SCE on August 9: SCE said that it h=
as TEMPORARILY stopped charging CTC because it doesn't know what to charge =
for DWR. Meanwhile, it continues to keep track of the dollar flows through =
the TCBA and the new account set up for DWR. Once the CPUC decides on the =
DWR's revenue requirement, SCE expects that it will charge generation-relat=
ed CTC again. There is also continuing CTC related to QF contracts that wi=
ll return (and goes beyond 3/31/02) once QF contracts are above the "market=
". SCE is also considering filing a petition with the CPUC to get guidance=
on all these matters. Once the CPUC rules on SCE"s advice letter approache=
s, SCE plans to go back and re-bill begining with Jan 18 (it used some diff=
erent PX credit approaches early on and switched to this approach for bills=
going out June 4). I didn't ask the question about calculating CTC back to=
Jan 18. I guess if the DWR rev req is retroactive and leaves room for CTC=
, they will bill it. The other twist I had forgotten about is that they ha=
ve a one-half cent charge added to the embedded gen rate of 10.27 cents (ma=
king it about 10.77 cents) that collects the $400 million that was uncollec=
ted while the CPUC played around with a rate design for the three cent surc=
harge. The half cent addition is for 12 months.

-----Original Message-----=20
From: Curry, Wanda =20
Sent: Friday, August 10, 2001 8:51 AM=20
To: Swain, Steve; Mellencamp, Lisa; Steffes, James D.; Ruffer, Mary Lyn=
ne; Tribolet, Michael; Huddleson, Diann; Mara, Susan

Cc: Gorny, Vladimir; Bradford, William S.=20
Subject: Summary or PX Credit Proposals=20

I wanted to summarize the conclusions from our meeting on Wednesday, August=
8th. Please let me know if I have misrepresented anything. =20

Below is a description of four proposals which may help resolve issues asso=
ciated with PX credits or mitigate Enron's exposure to PX credits. Steve S=
wain has the responsibility for evaluating each proposal, and his goal is t=
o have recommendations for EWS/EES management on August 14th. =20

Current Issues:=20
1) The methodology for calculating PX credits after January 18 is undeterm=
ined (SCE and PG&E have implemented different methodologies)

2) Applicability of the 1 cent surcharge to direct access customers (PG&E =
is passing thru to DA customers, SCE is not)=20
3) Impact to Enron if FERC implements retroactive changes to the CAL PX =
clearing prices from Oct 2, 2000 thru January 18th which result in revised =
PX credits=20

4) Recoupment of outstanding PX credits against future payments for T&D=20
5) Uncertainty surrounding future tariffs (CTC or other pass through charg=
es), making it difficult to hedge price risk in forward positions

6) Large uncollected receivables from both PG&E and SCE=20

The four proposals are as follows:=20

SCE Recommended Approach=20
This approach assumes no PX (or PE) credit effective from January 1=
8, 2001 forward. Mary Lynne and Diann will work with Steve to quantify the=
gross PX receivable (as billed by each utility) which would be reversed=
. This approach will ensure that only charges for T&D (no generation/c=
ommodity costs, CTC charges, or surcharges for CDWR, including the 1 cent) =
will be applicable to Direct Access customers. =20

Enron would request the following:=20
1) Assurances that no surcharges for CDWR will be passed through to=
EES or EEMC=20
2) SCE will support our historical PX credit receivable as an "all=
owable claim" at a minimum and would provide additional credit support if p=
ossible. =20

3) PG&E will support Enron's recoupment argument=20
4) Both utilities will immediately reinstate the Cumulative Credit =
Balances on utility bills and agree to a netting arrangement at the utility=
parent level.=20

5) Both utilities agree to not adjust the historical PX credits, if=
/when an adjustment of historical PX clearing prices is mandated by FERC=20

Other consideration:=20
Ability to hedge price risk in the retail portfolio, without concer=
n re CTC or other surcharge amounts. =20

PG&E Recommended Approach=20
This approach assumes the PX calculation methodology effective Janu=
ary 18, 2001 would include an "avoided cost" component. This avoided cost=
=20

component would include, owned generation, QF purchases, actual CDW=
R purchases for the utility, bilateral purchase contracts, and ISO purchase=
s. This resulting "avoided cost" would be used in lieu of the PX cle=
aring price in the old PX formula through March, 2002. If the actual CDW=
R purchase costs are not included, then the surcharge (along with the embe=
dded gen costs) should be included in the calculation. =20

=20
Enron would request the following:=20
Same as above=20

Other Consideration:=20
Enron would continue to be exposed to "price" risk attributable to=
the actions of the utility at a minimum through March, 2002. This would h=
amper Enron's ability to hedge the positions in the retail port=
folio.=20

Hybrid Approach=20
This approach assumes that the PG&E approach is applicable from Jan=
uary 18, 2001 through September 1, 2001 and that the SCE approach is =
applicable from September 1st forward. This approach might be necessary=
as a compromise for both utilities to provide their support of the proposa=
l.=20

Enron would request the following:=20
Same as SCE and PG&E approach=20

Other considerations:=20
Ability to hedge price risk in the retail portfolio, without concer=
n re CTC or other surcharge amounts. =20

Enron Model=20
This approach assumes we continue to support a market based (NP15 a=
nd SP15) calculation methodology for the PX credit. =20

Enron would request the following:=20
It is unlikely we would receive any level of cooperation from eithe=
r PG&E and SCE. The consensus from legal, regulatory, and EWS commercial =
is the probability of getting this approach approved is low. Howev=
er, understanding this amount, at a minimum, can be used to help defend the=
"value" Enron is foregoing in order to reach agreement with the utiliti=
es and CPUC.

Other considerations:=20
This approach would give Enron the ability to hedge "price" risk, b=
ut this is somewhat offset with incremental credit exposure associated wit=
h the actual collection of the PX credit.

Again, please let me know if this does not clearly represent what we conclu=
ded in Wednesday's meeting.=20

Thanks,=20
Wanda Curry=20