Chris,

Jeff and I have spent some time discussing Sempra issues and decided to use 
the meeting delay as an opportunity to develop some power price structures 
that may be interesting to them. This is all driven by PG&E's recent move to 
fix prices for upwards of 1,000 MW's.  The pressure will be on SDG&E and SCE 
to do likewise.

 I will be in Portland on Monday and hope to get some time with you to 
discuss this but wanted to provide you with a preview.

Jeff and I discussed some structures that might be attractive to Sempra given 
the regulatory and shareholder risk they face should they (1) continue to buy 
power at market prices and/or (2) lock in a fixed price: 
(a) costless collar,
(b) fixed price coupled with writing long-dated puts, and 
(c) price cap.

These structures are intended to address Sempra's risk exposure.  Our 
underlying understanding is:
1)  Continued purchases @ market exposes Sempra to substantial regulatory and 
shareholder risk,
2)  Fixing the price mitigates both of these risks,
3)  A costless collar arguably keeps Sempra in the market limiting their 
exposure to higher prices but allowing them to benefit from lower prices,
4)  Writing the put generates a premium which can be applied to lower a fixed 
price, and
5)  Holding a call eliminates their exposure to high prices and allows them 
to benefit from lower prices.

With that said, I expect the cost of the call to be huge.  However, the 
costless collar and fixed price with a put could be attractive.  The only 
problem with collars is that our bid-offer spread typically skews the band 
such that if the underlying price were $50, a cap with a $70 strike would be 
associated with a $40 strike on the put.

Our thought was to get some notional prices and but together a few plots to 
illustrate how these products work.
 
What do you think?

Laird