Hi,

I wanted to bring these new ISO charges to everyone's intention, so that we could compare them to our EES Master and Confirmation Letter to determine whether these costs would be passed through to our EES customers.

As a result of the FERC's June 19 Order, the ISO will be assessing new charges against Scheduling Coordinators.  These charges are for Emission Costs and Start-up Fuel Costs incurred by generators in providing energy to the ISO under the new "Must Offer" requirements.  The FERC ordered generators to bill the ISO directly for Emission Costs and Start-Up Fuel Costs, and the ISO is going to pass these costs through to all SCs, on a pro rata basis, based on each SC's metered demand in California (both inside and outside the ISO).  See ISO Tariff Sections 2.5.23.3.6 through 2.5.23.3.7.7.     

Looking at the EES Master Agreement, the customer has agreed to pay for the following charges:

	all charges associated with delivering the energy to the utility, including ancillary services, uplifts, congestion, losses and other similar charges and 	fees; provided such charges will not duplicate charges in the Spot Energy Price.  In addition, you will be responsible for and pay (without 	duplication) all utility distribution and related charges; other charges and surcharges, including the Special Utility Charges and the Special DA 	Charges, and any other charges that apply to direct access customers (e.g. rate recovery, energy procurement, system reliability, public purpose 	and similar types of charges and surcharges); Initial Exit Fees; fees relative to any future return to utility bundled service; and ICAP Charges.

While we could argue that these charges were "other charges that apply to direct access customers. . .e.g., . . .energy procurement," an EES customer may argue that it isn't responsible for "energy procurement" charges because these charges are also being passed through to utility customers, i.e, these costs are not assessed on direct access customers only.  For this reason, I think it is better to characterize these charges as "Special DA Charges."

Under the terms of the EES Master, I believe we can pass the ISO charges for Emission and Start-Up Fuel Costs through to EES customers as "Special DA Charges," which include  "any charges. . . imposed. . . by any Governmental Authority on 'direct access' customers (regardless of whether any such charge is also imposed on other classes or types of customers [i.e., utility tariff customers---sch]), . . .that are related to. . . charges for system reliability."  These charges are (1) imposed by a Governmental Authority (the ISO), (2) on direct access customers, and (3) are related to "system reliability" because they are incurred by the ISO when the ISO is calling on "Must Offer" generators because of inadequate supply.  Although these charges will be imposed on both direct access customers and customers served by utilities, the definition of "Special DA Charges" is not limited to charges that apply to direct access customers only because the "Special DA Charges" apply "regardless of whether any such charge is also imposed on other classes or types of customers."    See below for the full definition of Special DA Charges.
 
		"Special DA Charges" means any charges, fees, assessments, adders or surcharges imposed or authorized by any Governmental Authority on 	"direct 		access" customers (regardless of whether any such charge is also imposed on other classes or types of customers), however styled or payable, that 		are related to (i) a Utility's, ISO's or Governmental Authority's energy procurement, including, without limitation, charges for system reliability, rate 		recovery, future payback of under-collections, amortization of above market purchases and energy load repurchases; or (ii) public purpose programs, 		including, without limitation, environmental, social/low income, renewable energy utilization, and demand side management 	programs.  Such charges will 		apply regardless of whether the 	energy requirements of the Accounts are being supplied by us or the applicable Utility.


Also, I don't think the ISO charges would qualify as "Special Utility Charges" because they are not "Utility" charges. 

	"Special Utility Charges" means charges by a Utility for services other than standard electric service under a tariff of general applicability, 	including, without limitation, charges for facilities or equipment rental or for other products or services not generally available to customers of the 	same rate class and type as Customer.

To summarize, I believe the terms of the EES agreement permit us to pass the ISO charges for Emission and Start-Up Fuel Costs through to EES customers as "Special DA Charges.   

Any other thoughts or comments?

Steve