Ken - 

Good morning.  

As a follow up to the voice mail that I left for you, following are some 
background and preparatory notes for a potential phone call today between 
Chancellor Reed and yourself.  Communications and indications from the UC/CSU 
team are that he may call you today as a follow up to your discussion with 
him on February 2, 2001.  As I mentioned at the Executive Committee meeting 
on Tuesday, 2/20/01, all things are moving along well in California with our 
clients, PG&E and SCE.  The current exception to the "smooth sailing" is 
UC/CSU.  Tom Riley, the account manager for UC/CSU, has prepared the 
following outline of business concerns, sequence of events and suggested 
talking points.

Ken, thank you for your assistance and continued participation with this 
client.

Regards - Dan



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Business Concerns

UC and CSU have business concerns regarding Enron's action to De-DASR their 
accounts.  They have not communicated their concerns with enough detail that 
would allow us to address them, but I have been able to surmise that they 
consist of the following:

1.  UC/CSU is now a bundled access customer instead of a direct access 
customer.  AB-1X, recently signed by Gov. Davis, has ban language preventing 
large commercial/industrial customers from going Direct Access.  Per Jeff 
Dasovich of Enron Gov. Affairs, it is not clear, but possible, that if we had 
not De-DASRed the accounts, that UC/CSU might have been grandfathered as a 
direct access customer.  Further, SB-27X (still pending), which is Senator 
Bowen's attempt to reverse the ban language of AB-1X, may have a financial 
ramification for customers switching to and from Direct Access status.  
Dasovich is investigating further.

2.  UC and CSU bought approximately 130 meters from Enron as we implemented 
the contract.  Our action is forcing the utility to remove these 
University-owned meters, meaning that their meters will become useless.  We 
are currently using those meters to provide daily 15 minute interval data as 
required in our contract. (Our operations and billing group have come up with 
a transition plan that SCE has agreed to. SCE would install dual-sockets 
allowing for the installation of the SCE meter, while keeping our meter in 
tact, mitigating their concern.  At this point, UC and CSU are not listening 
to our business solutions so we have not received feedback from them on this 
solution).

3.  We have a contractual obligation to be the Universities scheduling 
coordinator (SC).  As a result of our action, we are no longer their SC.  
They are concerned this may inhibit our ability to act as their SC for their 
recent proposal to the ISO under the Demand Reduction Program.



Sequence of Events

February 1 - I informed the UC/CSU electricity oversight board leaders and 
contract administrators of Enron's decision.  I walked through the power 
point presentation.  They expressed no concerns at that point, and even 
expressed appreciation we were standing by our contract.  I sent the UC and 
CSU contract administrators the letter later that day advising them of our 
decision.

February 2 - Ken Lay called Chancellor Reed assuring the Chancellor that we 
will honor the contract.  I have since heard that this call was extremely 
well received and that the CSU campus VPs have been advised of the call and 
Ken's assurances that were communicated.  We offered the call to the UC 
President as well, but were channeled to his SVP.  By the time I made contact 
with the SVPs administrator, we had begun receiving letters (below), so I 
backed off on arranging the call.

February 5 - UC and CSU contract administrators inform us they have been 
speaking to their regulatory advisor and asked for some clarifications.  
Maureen Palmer and I speak to the contract administrators and answer their 
questions.  

February 8/9 - UC and CSU send letters to their PG&E and SCE account managers 
advising them they have concerns regarding Enron's decision, and that they 
(PG&E and SCE) should only De-DASR on the Universities' request.

February 12 - I received a letter from the UC/CSU contract administers asking 
for clarifications regarding our action, and requesting we re-DASR their 
accounts.

February 14 - I responded with a letter providing them with responses to 
their clarification questions, but did not offer to re-DASR their accounts as 
they had requested.

February 16 - UC informed me they were unhappy we did not comply with their 
request to re-DASR and indicated they would be sending another letter.  I 
suspect this letter will express potential legal recourses.

February 20 - CSU and UC informed they would hold off on the letter pending 
outcome of a call between Chancellor Reed and Ken Lay.

Throughout the entire process, I have been asking that the business 
administrators meet with us so Enron can hear their concerns.  I gather CSU 
would like to do this, however, UC is more inclined to write letters and seek 
legal remedies.



Suggested Talking Points for Call and Desired Outcome


1.  We were faced with a difficult business decision, and made our California 
decision with our customers in mind.  We have kept our contracts in tact.  
Other energy service providers have left the market and their customers.

2.  We are an energy outsourcing company.  We should source supply from the 
"best available" source in the marketplace. We feel we have a contractual 
right to have made the decision.

3.  Desired outcome is that we want to sit down with the University business 
administrators to listen to and address their concerns.  We have not been 
afforded this opportunity to date though we have offered.  However, the 
Chancellor needs to understand we are not willing to re-DASR their accounts 
in the meantime.



I will be available for the debrief with Ken if desired.  I can be reached at 
925-543-3703 (office), or 925-548-0326 (mobile) if you have any questions.

Regards, Tom
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