Here is the explaination on "exit fees" for direct access under SB 27X.

All parties, including the ESPs and large customers, agree that any party
who takes power from DWR after Jan 17, 2001, has received a subsidy as a
result of the operation of the frozen rates still in effect ( plus the
emergency penny/kWh surchage).  These customers will have to pay this
subsidy back in the form of retiring the revenue bonds which will be floated
to pay off the DWR power purchase costs.  If a customer were to elect direct
access during the bond repayment period (or anytime after 1-17-01), they
could potentially escape their fair share of the these costs, and would have
received the subsidized, lower cost electricity without paying the full cost
of that power.  To prevent this, the draft of SB 27X proposed by the direct
access coalition says that all customers electing direct access will be
responsible for any undercollection for DWR power costs related to the time
when they were served by DWR, until the date they stopped taking such
service, after which they have no more obligation to pay for DWR purchases.
This is subsection (d) of the coalition draft.

The second form of exit fee is that related to the actual DWR contracts for
power.  It is this charge (to make DWR whole for higher contract costs when
load leaves stranded capacity under contracts of a year or longer) which
will be waived during the period of "open enrollment" or "free switching" to
direct access.  There will be no exit fee during an initial open enrollment
period (date to be determined, we are asking for 10-1-01) and during all
times when the total long term generation portfolio assembled by DWR and the
utilities: retained generation, QF contracts, and long term (>1 yr.) DWR
purchases is less than the total load on the utility system, including load
growth.  Then customers can switch to direct access without this second exit
fee until the total load is reduced to match the long term portfolio. All
switches are first-come, first-served.

Once that equilibrium is reached any additional customers who want to elect
direct access may do so, but have to pay a fee equal to the net unmitigated
cost incurred by DWR as a result of losing that customer's load.  Once DWR
contracts expire, creating more "headroom" then customers can once again
switch without an exit fee.

I hope this clarifies what we are proposing.  Bear in mind the DWR and Dept
of Finance may well seek substantial changes in this language.  Thanks, Mike
Day



 <<sbx 27 amendments 3-7-01.doc>>

 - sbx 27 amendments 3-7-01.doc