One Other Note on Stranded Costs

Steve --

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

-----Original Message-----
From: =09Mara, Susan =20
Sent:=09Monday, August 13, 2001 12:27 PM
To:=09Curry, Wanda; Swain, Steve; Mellencamp, Lisa; Steffes, James D.; Ruff=
er, Mary Lynne; Tribolet, Michael; Huddleson, Diann
Cc:=09Gorny, Vladimir; Bradford, William S.; Kingerski, Harry; Savage, Gord=
on; Tribolet, Michael
Subject:=09RE: Summary or PX Credit Proposals

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-----
From: =09Curry, Wanda =20
Sent:=09Friday, August 10, 2001 8:51 AM
To:=09Swain, Steve; Mellencamp, Lisa; Steffes, James D.; Ruffer, Mary Lynne=
; Tribolet, Michael; Huddleson, Diann; Mara, Susan
Cc:=09Gorny, Vladimir; Bradford, William S.
Subject:=09Summary or PX Credit Proposals

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:
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)
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
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

The four proposals are as follows:

SCE Recommended Approach=20
=09This approach assumes no PX (or PE) credit effective from January 18, 20=
01 forward. Mary Lynne and Diann will work with Steve to quantify the =09g=
ross PX receivable (as billed by each utility) which would be reversed. =
This approach will ensure that only charges for T&D (no =09generation/comm=
odity costs, CTC charges, or surcharges for CDWR, including the 1 cent) wi=
ll be applicable to Direct Access customers. =20

=09Enron would request the following:
=091) Assurances that no surcharges for CDWR will be passed through to EES =
or EEMC
=092) SCE will support our historical PX credit receivable as an "allowabl=
e claim" at a minimum and would provide additional credit support if possib=
le. =20
=093) PG&E will support Enron's recoupment argument=20
=094) Both utilities will immediately reinstate the Cumulative Credit Balan=
ces on utility bills and agree to a netting arrangement at the utility pare=
nt =09level.=20
=095) Both utilities agree to not adjust the historical PX credits, if/when=
an adjustment of historical PX clearing prices is mandated by FERC=20

=09Other consideration:
=09Ability to hedge price risk in the retail portfolio, without concern re =
CTC or other surcharge amounts. =20

PG&E Recommended Approach
=09This approach assumes the PX calculation methodology effective January 1=
8, 2001 would include an "avoided cost" component. This avoided cost =20
=09component would include, owned generation, QF purchases, actual CDWR pur=
chases for the utility, bilateral purchase contracts, and ISO purchases. =
=09This resulting "avoided cost" would be used in lieu of the PX clearing p=
rice in the old PX formula through March, 2002. If the actual CDWR purch=
ase =09costs are not included, then the surcharge (along with the embedded =
gen costs) should be included in the calculation. =20
=09
=09Enron would request the following:
=09Same as above

=09Other Consideration:
=09Enron would continue to be exposed to "price" risk attributable to the =
actions of the utility at a minimum through March, 2002. This would hamper=
=09Enron's ability =09to hedge the positions in the retail portfolio.=20

Hybrid Approach
=09This approach assumes that the PG&E approach is applicable from January =
18, 2001 through September 1, 2001 and that the SCE approach is =09applicab=
le from September 1st forward. This approach might be necessary as a comp=
romise for both utilities to provide their support of the proposal.=20

=09Enron would request the following:
=09Same as SCE and PG&E approach

=09Other considerations:
=09Ability to hedge price risk in the retail portfolio, without concern re =
CTC or other surcharge amounts. =20

Enron Model=20
=09This approach assumes we continue to support a market based (NP15 and SP=
15) calculation methodology for the PX credit. =20

=09Enron would request the following:
=09It is unlikely we would receive any level of cooperation from either PG&=
E and SCE. The consensus from legal, regulatory, and EWS commercial is =
=09the probability of getting this approach approved is low. However, und=
erstanding this amount, at a minimum, can be used to help defend the "value=
"=09Enron is foregoing in order to reach agreement with the utilities and C=
PUC.

=09Other considerations:
=09This approach would give Enron the ability to hedge "price" risk, but th=
is is somewhat offset with incremental credit exposure associated with the=
=09actual collection of the PX credit.

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

Thanks,
Wanda Curry