RE: Sue's Retort to SCE's Premise

-----Original Message-----
From: Mara, Susan=20
Sent: Wednesday, October 31, 2001 2:36 PM
To: Dasovich, Jeff; Steffes, James D.; Mellencamp, Lisa; Tribolet,
Michael; Huddleson, Diann; Swain, Steve; Curry, Wanda; 'mday@gmssr.com'
Subject: Sue's Retort to SCE's Premise
Importance: High

I don't agree Edison's premise -- that "direct access customers contributed=
just as much to SCE's procurement costs undercollection as bundled service=
customers." We need to make clear that we don't buy in to their rhetoric.

Here's my reasoning.

DA Customers are completely different from bundled customers. SCE had to bu=
y power to serve the bundled load. SCE did not buy power for DA customers.=
SCE's purchases of the power to serve the bundled load coupled with high =
wholesale prices and an inability to raise rates was the direct reason for =
the undercollection. I can make the argument that the undercollection is SO=
LELY related to BUNDLED SERVICE.

There are two big reasons that back me up: AB 1890 and Top-down rates. I w=
ill explain. The utilities got what they wanted out of AB 1890 -- payments=
of $30 plus billion in so-called stranded costs and a real delay in any co=
mpetitive retail market until their costs were paid off. One of the tradeo=
ffs, however, was that the utilities were at risk FOR HIGH PRICES in the WH=
OLESALE MARKET. Everyone understood that if there were high gas prices or =
bad hydro years, the utilities would be squeezed and not collect their bill=
ions by the 3/31/01 deadline. That's the risk they agreed to. Now, they ar=
e claiming that they were ENTITLED to that money and more. This is in dire=
ct conflict with the statute. I can make the argument that the statute requ=
ires SCE to assume this risk and therefore any undercollection is theirs al=
one -- now the CPUC can bail them out -- but that doesn't make ESPs subject=
to any presumed "undercollection."

Now to the rates. At the beginning of DA, the utilities did not want to do=
a real rate case and separate the costs of the wholesale business and the =
retail busness from T&D. So, they did a "top-down" calculation. This meant=
that there had to be a "credit" put on the bills of DA customers to accoun=
t for the costs the utility avoided by having the customers switch to DA. S=
o, the PX Credit structure was a direct result of the utilities unwillingne=
ss to unbundle specific components of the rates. Next, although bundled cu=
stomers rates were capped, the decisions from the CPUC made it clear that t=
here was no similar cap for DA customers -- their rates and bills would be =
whatever was charged by their ESPs. However, when the utilities filed thei=
r tariffs with the CPUC, they added a cap for the PX credit that was neithe=
r proposed nor authorized by the Commission. Enron attacked it, but got no=
where, until WPTF and Enron brought it up in the 1998 RAP Proceeding. Our a=
rgument was that the bundled rates were capped but not the bills of DA cust=
omers -- and the credit was supposed to represent the full costs the utilit=
ies avoided by not serving DA customers. We argued that anything less is f=
undamentally unfair and anticomeptitive. The utilities must have thought w=
e had a good case, because they agreed to settle. The settlement was accept=
ed by the Commission in the proceeding. Everyone understood that eliminatin=
g the cap on the PX Credit was primarily to allow the PX Credit to FLOAT AB=
OVE THE CAP when wholesale prices were high. So, we have a legal right to r=
eceive the full PX Credit/Negative CTC which is separate and distinct from =
any undercollection associated with bundled customers. It seems as if we sh=
ould be able to prosecute this legal right. (keeping in mind I am not an at=
torney)=20

In summary, we have leverage and should use it.

Sue

-----Original Message-----
From: Dasovich, Jeff=20
Sent: Wednesday, October 31, 2001 11:12 AM
To: Mara, Susan; Steffes, James D.; Mellencamp, Lisa; Tribolet, Michael;
Huddleson, Diann; Swain, Steve; Curry, Wanda; 'mday@gmssr.com'
Subject: Proposal Edison Is Distributing to ESPs

FYI.

-----Original Message-----
From: Matt.Pagano@sce.com [mailto:Matt.Pagano@sce.com]
Sent: Wednesday, October 31, 2001 1:05 PM
To: Dasovich, Jeff
Subject: DA Credit=20

Hi Jeff,

Please find below SCE's proposal to settle past Direct Access Credit issues
and determine the Direct Access Credit going forward. Please forward this
to any other Enron participants to review prior to our conference call with
John Fielder, November 1, 2001, 11:00 a.m. PST.

(See attached file: DA Proposal.doc)

Thanks.

Matt Pagano
Account Manager
ESP Services Division
tel-714-895-0222
fax-714-895-0347
Email-Paganomj@SCE.Com