I forgot to copy you on this e-mail from yesterday.  We are trying to get this letter out to the ISO.  All of our information indicates that the ISO is not requiring DWR to post collateral---just like it used to not require PG&E and SCE post collateral.  And we know what happened then.

 -----Original Message-----
From: 	Hall, Steve C.  
Sent:	Wednesday, August 01, 2001 4:46 PM
To:	Belden, Tim; Yoder, Christian; Mara, Susan
Cc:	Comnes, Alan; Blair, Kit; O'Neil, Murray P.; ray.alvarez@enron.com; Ngo, Tracy; Foster, Chris H.
Subject:	RE: ISO's possible violation of creditworthiness standards of CAISO Tariff

Kit has learned that no SCs have been paid anything for April deliveries, even though payment was due July 12.  Either the ISO is sitting on a bunch of money, or CDWR has not paid and the whole house of cards is ready to collapse.  

Here is a first cut at the letter.  I wrote it for Enron's signature, but suggest that we get a trade group to send the letter out---if possible.  If we can get someone else to send the letter, I can revise it as needed.---Steve

Terry Winter
California Independent System Operator Corporation
151 Blue Ravine Road
Folsom, California  95639


Dear Mr. Winter,

As a Scheduling Coordinator with the CAISO, Enron is concerned that purchasers of CAISO energy and ancillary services continue to default on payment.  Under its Tariff, the CAISO was supposed to pay sellers for April deliveries on July 12, 2001.  Yet, to date the CAISO has not paid sellers anything for April deliveries.  Enron, and presumably other Market Participants, had expected a higher level of payment for April sales following FERC's April 6, 2001 Order, which required the CAISO to have a creditworthy counterparty to back the CAISO's purchases from third-party suppliers.

FERC's April 6, 2001 Order clarified that the CAISO is required to enforce CAISO Tariff provision 2.2.3.2 with respect to all transactions.  Section 2.2.3.2 requires each Scheduling Coordinator to maintain an acceptable form of financial security, such as a letter of credit, or an Approved Credit Rating, as defined in the CAISO Tariff.  It is puzzling that the CAISO would continue to have such defaults if all Scheduling Coordinators are maintaining adequate collateral or Approved Credit Ratings.

Accordingly, please confirm that all Scheduling Coordinators, including the California Department of Water Resources ("CDWR") and the California Energy Resources Scheduling ("CERS"), have posted financial security sufficient to back their purchases and commitments.  We also request that the CAISO provide a list of any Scheduling Coordinators, Utility Distribution Companies, or Metered Subsystems that are not currently providing financial security, and do not maintain an Approved Credit Rating.  Further, please identify any Scheduling Coordinators that have not provided some form of financial security, but are relying upon an Approved Credit Rating.

Finally, please provide Enron with copies of the CAISO's most recent (1) Code of Conduct Audit and (2) Operations Audit, both of which are required to be conducted yearly and provided to Market Participants upon request.  CAISO Tariff sections 12.2.2 and 12.2.3. 

Sincerely,


 -----Original Message-----
From: 	Belden, Tim  
Sent:	Wednesday, August 01, 2001 10:41 AM
To:	Yoder, Christian; Mara, Susan; Hall, Steve C.
Cc:	Comnes, Alan; Blair, Kit; O'Neil, Murray P.; ray.alvarez@enron.com; Ngo, Tracy
Subject:	RE: ISO's possible violation of creditworthiness standards of CAISO Tariff

Christian's proposal makes a lot of sense to me.  Does anyone disagree?  If not, then we should proceed.  Who is taking the lead on this?

 -----Original Message-----
From: 	Yoder, Christian  
Sent:	Wednesday, August 01, 2001 8:16 AM
To:	Mara, Susan; Hall, Steve C.
Cc:	Comnes, Alan; Blair, Kit; O'Neil, Murray P.; ray.alvarez@enron.com; Belden, Tim; Ngo, Tracy
Subject:	RE: ISO's possible violation of creditworthiness standards of CAISO Tariff

I am in favor of the sending of a letter to Terry Winter option.  We have a concern.  We ask the boss what is going on, citing the proper tariff sections and asking him whether or not the full faith and credit of the state is behind CDWR.  If we get no answer or a non-answer, we should appeal by taking it to FERC. We should proceed deliberately, step by step.   ----cgy 

 -----Original Message-----
From: 	Mara, Susan  
Sent:	Tuesday, July 31, 2001 4:59 PM
To:	Hall, Steve C.
Cc:	Comnes, Alan; Yoder, Christian; Blair, Kit; O'Neil, Murray P.; ray.alvarez@enron.com; Belden, Tim; Ngo, Tracy
Subject:	Re: ISO's possible violation of creditworthiness standards of CAISO Tariff

There are several approaches to this.  You could send Keoni an e-mail asking the question and see what response you get.  I doubt they will put it in writing.  Other than that, we can send a letter to Terry Winter and ask for a reply.  Probably the same thing will happen that happened the last time -- we wtite a letter and Keoni e-mails me saying thet're working on it.  I can talk to one of my contacts -- but that won't get anything in writing.  Or we can file a complaint at FERC, but we only have hearsay to back us up. I could also see if the generators want to pursue this.  What's your pleasure.

Sue Mara
Enron Corp.
Tel: (415) 782-7802
Fax:(415) 782-7854




	Steve C Hall/ENRON@enronXgate 07/31/2001 04:36 PM 	   To: Susan J Mara/NA/Enron@ENRON, Alan Comnes/ENRON@enronXgate, ray.alvarez@enron.com@SMTP@enronXgate, Tracy Ngo/ENRON@enronXgate, Kit Blair/ENRON@enronXgate, Murray P ONeil/ENRON@enronXgate, Christian Yoder/ENRON@enronXgate, Tim Belden/ENRON@enronXgate  cc:   Subject: ISO's possible violation of creditworthiness standards of CAISO Tariff	


Sue,

We have just learned that the ISO has not been requiring the CDWR to post collateral for its transactions---just like it used to not require PG&E and SCE to post collateral.  This would seem to directly violate FERC's April 6, 2001 Order requiring that ISO creditworthiness standards apply to all transactions and all SCs.   

Section 2.2.3.2 of the CAISO Tariff requires SCs to post collateral, unless the SC has an "Approved Credit Rating."  One exception to this is if the SC is a "State Agency" that is "backed by the full faith and credit of the State of California."  CAISO Tariff, Appendix A, Definitions:  "Approved Credit Rating."  

Today, Keoni Alameda at the ISO informed Kit Blair in Settlements that "CDWR hasn't posted any collateral. . . .because it is backed by the full faith and credit of the State of California."  I highly doubt that this is true because (1) CDWR's power transactions have been separate from its functions as a water department, i.e., CDWR vs. CERS, and (2) all of the CDWR long-term contracts have made it very clear that the State's power transactions are not backed by the FF&C of California.

I am not sure how best to approach this problem, but Credit and Legal would like for the ISO to formally acknowledge that its biggest debtor is not backed by any financial guarantees, but that CDWR/CERS's transactions are backed by the FF&C of the State of California.  This would help clarify that the State is on the hook for power purchases, and not just the CERS fund.  Absent this, the ISO should require CDWR to post collateral as protection for other market participants against the risk of a default by CDWR.

Thanks,

Steve