Jeff -- good wrap-up.  May I forward to MKM and Drew?




Jeffery Fawcett
11/29/2000 10:58 AM
To: Steven Harris/ET&S/Enron@ENRON, Kevin Hyatt/ET&S/Enron@Enron, TK 
Lohman/ET&S/Enron@ENRON, Christine Stokes/ET&S/Enron@ENRON, Michelle 
Lokay/ET&S/Enron@Enron, Lorraine Lindberg/ET&S/Enron@ENRON
cc: Susan Scott/ET&S/Enron@ENRON 

Subject: Proposed Decision

The GD article today regarding the proposed decision is a pretty good Readers 
Digest version of the order.  Susan and I spoke with Jeff Dasovich and Mark 
Baldwin yesterday, and the consensus of those conversations was that 
Transwestern should remain involved in this proceeding only for purposes of 
implementation/documentation.  Jeff offered that he might send a letter to 
Governor Gray's office expressing both dismay and indignation that the CPUC 
didn't complete their task and warning of the adverse outcome to California 
ratepayers if these more modest reforms are approved.  He may ask the other 
Comprehensive Settlement parties to join in signing the letter.  Susan, Mark 
and I spoke about this idea later, and we've got some reservations about TW's 
role in admonishing the CPUC.   We should probably wait to see this letter 
first before committing to anything.

Bilas draft cautious toward SoCal competition
Mindful of the current chaos over energy markets in the state, California 
Public Utilities
Commissioner Richard Bilas has recommended the adoption of a much more 
moderate
approach to promoting competition on Southern California Gas, (SoCal) system.
In his draft decision, Bilas advised the commission to reject the unbundling 
of intrastate
transmission and instead approve the first settlement filed in the case, the 
less far-reaching
Interim Settlement (IS), submitted in December 1999. SoCal, San Diego Gas and 
Electric and
other parties filed two more settlements after the IS, reaching a 
comprehensive agreement in
April this year.

But since then, gas and power prices skyrocketed in the state, prompting a 
consumer
backlash and giving competition a bad name.  The draft language notes that 
the first interim
settlement was supported by more customer groups than the later agreements.
Recent events &lead us to conclude that the centerpiece of this 
investigation, the unbundling
of intrastate transmission and the implementation of a system of firm, 
tradable intrastate transmission rights, should be delayed,8 according to the 
draft order.  &This unbundling is the basis of the [comprehensive settlement] 
and we cannot approve it. We do not, however, wish to commit to paralysis 
until 2006, as the [post-interim settlement] would have us do. Accordingly, 
we believe Californians are better served at this juncture by the adoption, 
with modifications, of the IS.8

The biggest change to the IS in the draft is the rejection of an automatic 
capacity expansion
by SoCal at Wheeler Ridge, Calif., with rolled-in rates if certain criteria 
are met.  El Paso
Energy had objected to the provision in the IS that would have allowed SoCal 
to automatically
expand capacity at Wheeler Ridge by 100 million cfd if a certain number of 
curtailments oc-curred.  
El Paso objected to forcing all shippers to pay for the expansion at Wheeler 
when only certain customers would benefit.  
The draft says SoCal can file a separate application for the Wheeler Ridge 
expansion, but approval would be conditioned on a traditional hearing process.

The draft decision would also:
 End SoCal,s current &windowing8 process, which limits shippers, ability to 
change nominations
for deliveries between receipt points on the system. It is replaced with an 
announced
daily calculation of capacity available at each receipt point;
 Establish Hector Road as a formal receipt point for nominations;
 Institute an operational flow order (OFO) procedure. Provides a forum for 
more changes
in OFO procedures if excessive OFOs are made;
 Set up &pools8 of gas on the SoCal transmission system that are intended to 
increase the
liquidity of gas trading;
 Make changes to balancing rules, while retaining the current 10% monthly 
imbalance
tolerance;
 Make SoCal,s own gas acquisition unit subject to the same balancing rules 
and penalties
as all other shippers;
 Allow some limited imbalances trading, as well as the right to assign and 
reassign unbundled
storage contract in a secondary market, with a SoCal electronic bulletin 
board set up
for it;
 Unbundle from core transportation rates the storage capacity cost exceeding 
that required
for core minimum reliability; and
 Provide for rate recovery of up to $3.5 million in implementation costs.

In addition, the draft would unbundle core interstate transportation from 
rates, eliminate
core contribution to noncore interstate transition cost surcharges, eliminate 
the core subscription
option as well as the caps for core aggregation programs.  The threshold for 
participating in
core aggregation is reduced, and billing options are offered to core 
aggregators.

Bilas, draft also warned that the commission may come back in two years to 
open another
investigation into gas competition, taking into account any changes in market 
conditions.
Bilas gave a little more insight into his decision in the text of the draft.
&The cost of gas as a commodity has vastly increased at the border, showing a 
differential
between the basin and border prices that is more than the cost of transport 
and related services;
we question whether there will be an opportunity for discounting by marketers 
if more competition is allowed,8 
Bilas wrote in the draft decision.  &With half the state already committed to 
a
restructured competitive natural gas industry, it suddenly seems as if the 
benefits of such re-
structuring to enhance competition are speculative, particularly at this 
time.  With one leg in the
water, the current has switched direction and it will be difficult, if not 
foolhardy, to reach our
goals by forging ahead.

&We choose to take a cautious approach again,8 the draft continues. &Rather 
than proceeding
to unbundle transmission in Southern California now, we approve, with 
modifications, the settle-
ment suggesting smaller steps towards a competitive market. Additionally, we 
unbundle core
interstate transmission and once again urge the Legislature to pass consumer 
protection legisla-
tion aimed at unregulated marketers while we facilitate growth in core 
aggregation programs.8
The CPUC would not rule out the unbundling of intrastate transmission and 
other restruc-
turing in the future &but believe that at this point in time the certain 
benefits do not outweigh
the costs to most ratepayers.8

All drafts must be filed 30 days before the meetings at which they will be 
discussed. The
draft decision is currently on the agenda for the CPUC,s Dec. 21 meeting.