Roger --

As we talked about yesterday, we need to make a determination as to whether
to file rebuttal testimony in the latest round of the PG&E hydro case.  The
sooner we make this determination the better so that MRW will have
sufficient time to conduct any necessary discovery and hone their
preliminary analysis.

On the issue of valuation, there are now basically two "numbers" which have
been presented to the Commission for consideration.  The TURN/ORA analysis
sticks with their $2.7 billion valuation (credited to the TRA), with 100% (
or something close there to) of the ongoing profits from the operation of
the facilities (by PG&E) to be flowed through to ratepayer.   PG&E (using
Lehman Brothers) has also conducted a DCF analysis which results in a market
value range of $3.7 to $4.5 billion (the analysis was done based on an
assumed date for the transaction was January 1, 2001).  The testimony states
that the range of $3.9 to $4.2 billion is most reflective of the valuation
which likely bidders would pay in  a competitive auction.


The preliminary analysis done by MRW (which you should have received via
e-mail late in November), resulted in a current market value of the assets
being $4.7 to $4.9 billion.  MRW utilized the ORA/Turn model but revised the
underlying price forecasts and the assumptions regarding ancillary services.


Given the way the Commission is leaning these days (as represented by the
recent PD on Mohave), there is a good chance that PG&E will not be allowed
to auction off these assets, but must retain them.  Therefore, the issue
then becomes does the Commission go with a low valuation, with ongoing
profits going to ratepayers (as proposed by TURN/ORA), or do they go for a
high valuation, which would allow PG&E to make the valid argument that
ongoing profits go to shareholders.

The rest of the parties in the proceeding are not focusing on the valuation
as much as they are market power and environmental issues.  In other words,
the likelihood of alot of opposition coming in on the TURN/ORA proposal is
very low.  If we are of the opinion, that the valuation should be high (even
if the assets remain with PG&E), then we need to do some rebuttal.

If you would like me to set up a conference call early next week with MRW
and anybody at Enron you think should be involved, let me know.  Given that
the holidays are only a couple of weeks away, we did to reach some
conclusions pretty fast.


Jeanne