I understand that the decision was made to not comment due to customer 
relations concerns.  This is probably wise.

My take on our deals with interruptible customers is that we priced deals 
assuming that the customer would stay on an interruptible rate schedule and 
abide by the terms of that schedule and all tariff rules for that schedule 
through the expiration date of the schedule on March 31, 2002 (per PU Code 
Section 743.1).  These interruptible programs are programs administered by 
the local distribution company based on  decisions to interrupt from the 
ISO.  As I understand, the decisions to interrupt is based on system 
reliability issues, thereby justifying recovery of the cost of the program 
from all customers whom benefit from system reliability.  The customers 
decision to contract with the LDC to be on an interruptible schedule, and in 
some cases contract with an ESP under the assumption that the customer 
remains on the schedule, is primarily an issue between the customer and the 
LDC.  If a customer elects to not abide by the terms of the rate schedule, 
the customer should be responsible for the consequences.  Hopefully, are 
contract language specifies that the customer must pay the penalties for 
defaulting on rules for interruptible service.  I don't know how tight are 
contract language is with respect to the expectation to stay on interruptible 
service through March 31, 2002 and passing through penalties.  If one of 
customers elect to leave the interruptible schedule before March 31, 2002, I 
presume this would be grounds for nullifying the contract or renegotiating 
the contract.

In addition to the system reliability reasons for curtailing, it looks like 
the utilities, ISO, and CPUC, are looking for curtailment programs as 
demand-responsiveness programs in order to mitigate purported supply-side 
market power and reduce prices to California.  Under the current crisis, this 
is a good thing.  The question is who pays for these programs.  I have heard 
arguments that all loads should pay, since all loads benefit from the 
externalities of lower prices from lower demands.  This is only true for 
those loads be supplied by the spot market.  On the other hand, we have made 
the argument that only those customers that directly benefit should pay for 
the cost of the program.  In other words, a program for SO customers should 
be funded by SO customers, because the cost of programs sponsored by ESPs for 
DA customers are not recovered from SO customers.  I think that we need to 
divide this issue into a 2001 solution and longer-term solution.  Arguable, 
the 2001 and perhaps 2002 solutions are to benefit all load, including DA, so 
long as the current rate freeze structure is maintained.  However, in a 
post-freeze structure, the policy should probably be that only those who 
directly benefit should pay.  Another long-term policy guideline should be 
based on participation.  In other words, eligibility of participation should 
also determine whether DA customers should also pay for the program.  


	Direct Benefits	Eligible to Participate	Who pays
LDC Administered Program to address System Reliability	All Customers	All Customers with the proper 
metering and telemetry	All Customers
LDC Administered Program to address economic conditions under current market 
conditions and current rate freeze structure	All Customers so long as the rate freeze 
is maintained and prices are high?	SO customers with proper metering and telemetry	If all 
Customers, must pay, then the program should accommodate participation by DA 
customers as well
LDC in a default provider role administered program to address post-freeze 
economic conditions	SO Customers	SO Customers	SO Customers
ESP Administered Program to address post-freeze economic conditions	DA Customer	DA Customer	DA Customer

It is important to make the distinction in what capacity is the LDC 
administering interruptible programs, as seen above.  Also, it is important 
to understand the role of SCs and the ISO.  SCs are just the vehicle by which 
ESPs and wholesale marketers implement  DA curtailment programs and 
participate in ISO and PX markets for energy and ancillary services.  The 
ISO, like the utilities, wears two hats.  The ISO implements directions to 
the LDCs to curtail based on a last resort need to curtail.  The ISO is also 
trying to develop market solutions involving SCs and the LDC in their role as 
a default provider, in order to avoid having to issue general directions to 
utilities to curtail.  The utility similarly tries to first use interruptible 
rate schedules, then as a last resort relies on rolling blackouts.  It may be 
important to determine what category do new LDC programs fit into in the 
shortrun and the longrun.

What are our plans to participate and help California clearly define these 
issues?  Any thoughts?

Roger




Mona L Petrochko
10/11/2000 06:48 AM
To: Harry Kingerski@EES, Roger Yang
cc: West GA 
Subject: OII into the Operation of Interruptible Load Programs of SDG&E, S CE 
and PG&E


---------------------- Forwarded by Mona L Petrochko/SFO/EES on 10/11/2000 
04:47 AM ---------------------------


Mona L Petrochko
10/10/2000 09:08 PM
To: Douglas Condon/SFO/EES@EES, Martin Wenzel/SFO/HOU/EES@EES, Edward 
Hamb/HOU/EES@EES, James M Wood/HOU/EES@EES, Greg Nikkel/HOU/EES@EES, Greg 
Cordell, Chris Hendrix/HOU/EES@EES
cc:  
Subject: OII into the Operation of Interruptible Load Programs of SDG&E, S CE 
and PG&E

The Commission is looking to suspend the termination of interruptible 
contracts, by requiring existing participating customers to continue in the 
program.  Comments are due on Thursday.
---------------------- Forwarded by Mona L Petrochko/SFO/EES on 10/10/2000 
09:06 PM ---------------------------


JMB <JBennett@GMSSR.com> on 10/10/2000 04:05:32 PM
To: "'smara@enron.com'" <smara@enron.com>, "'mpetroch@enron.com'" 
<mpetroch@enron.com>, "'jdasovic@enron.com'" <jdasovic@enron.com>, 
"'smccubbi@enron.com'" <smccubbi@enron.com>
cc: MBD <MDay@GMSSR.com> 
Subject: OII into the Operation of Interruptible Load Programs of SDG&E, S CE 
and PG&E


Sue, Mona, Jeff, and Sandi --


Mike and I wanted to give you a preview of the Commission's latest actions
in response to the "crisis" in the California electric market.

In short, the Commission has instituted an Investigation in to operation of
the interruptible load programs of the three UDCs, and the effect of these
programs on energy prices, other demand responsiveness programs, and the
reliability of the electric system.

The item which has gotten the most "press" from the OII so far is the
proposed temporary suspension of the tariff provisions of the three UDCs
that allow customers to opt out of their interruptible program contracts
during the 30 day window commencing November 1st.  The Commission is using
its authority under PUC Section 743 ( which gives the Commission specific
authority to amend interruptible contracts between the UDCs and qualified
heavy industrials) to propose such suspension.  Although parties are allowed
to comment on the suspension by this Thursday (the 12th), the Commission
does have the apparent authority to effect the change and it will most
likely  proceed with the suspension.

Apart from the enforced extension of the interruptible contracts, however,
the OII potentially could have broader ramifications.  The intent of the OII
is to examine all interruptible, curtailable, and demand responsiveness
programs being currently offered and/or  proposed in California, and to
determine how these programs can best be structured and/or reformulated to
serve the Commission's goal of ensuring reliable and reasonably priced
electric service within California (especially for the summer of 2001).  It
is hard to tell exactly what the Commission has in mind.  However, it is
possible that such reformulation of curtailable/demand responsiveness
programs could interfere with Enron's (and other ESPs') ability to make
interruptible/ demand responsive deals with customers.

Moreover, the OII is not merely looking at larger customers. It states as
one of the purposes of the rulemaking the identification of if and how
smaller customers can participate in curtailable programs.  Specifically,
the OII states that "we need to examine the ability of smaller customers to
participate; the development of rate design and incentive polices of such
participation; a cost/benefit analysis of such programs; and the marketing
of any such programs." Such investigation and potential implementation of
demand responsiveness programs for smaller customers could impact and
interfere with ARM's attempts to structure a competitive default provider
program.

We would like the opportunity to discuss with you the implications of this
newest OII for Enron/ARM at your convenience.

Jeanne