Jim,

Here are my proposed changes to what you have said -- in color.

Here is the language keeping DA alive -- the decision is attached (it's short)

 D01-03-009,  page 6 , March 7, 2001
"Finally, due to pending legislation which would alter Section 80110, we 
shall stay action on implementation of the suspension of direct access under 
Water Code Section 80110 until further order."

Jeff,
Please fill in the discussion of the MOU below (bullet 5).

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The term "Surcharge" is only applicable until the end of the AB1890 rate 
freeze (which will end no later than March.31.02 and may end earlier if (a) 
federal court finds in PG&E/SCE favor or (b) California legislature mandates 
an earlier end-date or (c) the CPUC decides to actually complete its 
proceeding to value the retained assets and calculate an end to the rate 
freeze, which would take months.  Surcharge is a "term of art" to get around 
the problems of the AB1890 rate freeze.  
At the end of the AB1890 rate freeze, it is my understanding that the CPUC 
will modify fully the rate structure and level to ensure full cost recovery 
on a going forward basis (therefore Utility Retained Generation, QF expense, 
CDWR current expenses (both energy purchase and financing costs will be 
included). Some members of the CPUC signaled in the May 5 decision (noted 
below) that they intended to investigate "bottoms up" rate making -- this is 
preferred by AReM and many others.  Theoretically, it would clearly separate 
generation-procurement-retail sales functions from other charges, such as T 
and D.  DA sustomers would only be charged for T & D etc. -- not the other. 
If done correctly, even charges included now in T & D, such as some 
ISO-related functions, would be moved out to make the T&D charges pure wires 
charges.  This approach would be preferred. Any "bottoms up" proceeding would 
take months and unlikely to be concluded before the end of this year.
Other outstanding costs will include (1) Utility Undercollection from May.00 
until when no additional CA-ISO costs are applied or until rates cover costs 
and (2) CDWR costs beginning Jan.17.01 until the end of AB1890 rate freeze or 
the end of DWR's purchasing activities.
Understanding how all these costs will be recovered and by whom will most 
likely (80% probability) be decided by the Legislature with some 
decision-making by the CPUC. If theLegislature does not take this up, it will 
be decided by the bankruptcy court or federal court.
Utility Undercollection Bypass - 25% So far, the Legislature has done nothing 
to address the utility undercollection (except for San Diego, which has a 
balancing account but no way to cfollect it yet).  SCE's MOU does address 
this by (INSERT BY JEFF). The MOU has received bad reviews by the Legislature 
but Enron has been supporting it with some changes and a bi-partisan group of 
Legislators has been analyzing it and intends to propose amendments. 
Probablility that utility undercollection is dealt with by the Legislature -- 
50%
Various bills in the Legislature have been introduced to delete the language 
in AB1X 1that gave the CPUC the right to terminate DA.  A diverse group of 
business interests called the Direct Access Coalition has been pushing for 
this and for a bill that takes care of DWR's potential stranded cost problem 
but provides flexibility for direct access. 
Our current assessment is as follows:  Bypass allowed for payment of DWR 
costs Jan.17.01 thru rate freeze end  - 80% probability for people who never 
were on Utility Service, 50% for people who used Utility Service post 
Jan.17.01 but build self-gen or incorporate energy efficiency/load 
management; also,  50% chance for 60-90 day amnesty period for people to 
select direct access and 50% chance for free direct access (without surcharge 
or exit fee) for those who switch while DWR has a "net short" position.
CDWR Net Unavoidable Bypass - 10% for people who used Utility Service post 
Jan.17.01, 80% for others.

LEGISLATION IMPACTING THIS DECISION

There are three key direct access bills being considered (the Bowen bill - 
SB2x27, the Kelley bill - AB2x42, and the Battin bill - SB2x??).

The Bowen bill would remove the DA suspension authority granted in AB1x1 and 
replace it with the following (1) if a customer has not bought from an 
electric utility on or after Jan.17.01 there are no charges [except there may 
be an entrance fee to use the electric utility going forward] and (2) if a 
customer wants to switch from an electric utility to an ESP they must pay "to 
the department any uncollected amounts equivalent to the department's net 
unavoidable cost of power procurement, including any financing costs, 
attributable to that customer" to ensure the satisfaction of any power 
purchase obligation or bond obligation to serve "that customer".  The 
recovery period shall be coincident with the terms of bonds issued to finance 
the purchases.  The CPUC has 90 days from the effective date to notify 
customers of their obligations.  

The Kelley bill would remove the DA suspension authority granted in AB1x1 and 
replace it with the following (1) if a customer has not bought from an 
electric utility on or after Jan.17.01 there are no charges, (2) every 
customer is allowed to buy from an ESP a % of their load equal to the amount 
served by Utility Retained Generation (not CDWR purchases) with no charges, 
(3) after the effective date, any customer that buys from the electric 
utility and wants to switch must pay "to ensure satisfaction of any power 
purchase obligation or bond obligation incurred by the department" with the 
following constraints - (a) for res and small commercial customers, if DA 
load is less than load growth or (b) to self gen customers, if the customer 
has given 180 days prior notification or (c) if the customer has given DWR 12 
months' advance written notice (then only a fee equal to 12 months 
unavoidable costs).  The CPUC has 30 days from the effective date to notify 
customers of their obligations.

The Battin bill would ... still reviewing 

Keep in mind that all of these bills are in flux.  As described above, the DA 
Coaltion is pushing hard for a "good" direct access bill that provides some 
flexibility and has its own language that it is floating.  Even with exit 
fees, the Coalition's proposed language would require DWR to base the fee on 
a calculation of its actual costs from losing the load.  Enron is also 
pushing to make direct access part of any compromise settlement and the 
Republicans have taken the same approach.

CPUC DECISIONS IMPACTING THIS

March 7 Decision Implementing ABX 1 -- decided not begin the process to 
terminate direct access


May 5 Order - DA doesn't pay DWR expenses going forward and the 3 cent 
surcharge does not apply to DA customers.Good for bypass of these costs.  We 
expect the utilities to file Petitions to Modify the decision to argue that 
they cannot implement it -- they will likely seek to have the charge appply 
to DA Customers and then put the same amount in the credit. Given the 
problems we all have with the negative credit and the utilities' notion of a 
zero bill, there will be much opposition to the utilities' proposal.  The 
utilities chance of success on this is less than 50%.

Proposed action -- Alliance for Retail Energy Markets (AReM) will begin 
pushing to stop charging the current 1 cent  surcharge to DA customers (to be 
consistent with the May 5 decision). Chance of success is 60%. 




.

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