Please include this material in your Gov. Davis slides.  Very intersting and 
possible to do.

Jim


----- Forwarded by James D Steffes/NA/Enron on 10/06/2000 07:13 PM -----

	Mona L Petrochko@EES
	09/25/2000 07:59 PM
		 
		 To: Michael McDonald@ECT, Laird Dyer/SF/ECT@ECT, mday@gmssr.com, David 
Parquet@ECT, Samuel Wehn@ECT, jbennett@gmssr.com
		 cc: West GA, James D Steffes/NA/Enron@Enron
		 Subject: ERC Auctions

The attached memo from Goodin McBride summarizes the regulatory treatment of 
PG&E's emission credits to date.

It is an interesting animal.  Basically, PG&E has kept most of the credits, 
therefore has not divested the credits with the generating assets.  However, 
these assets have been acquired for nothing, therefore they have no 
"regulatory value".  In other words, their costs are not part of PG&E's rate 
base and are not being recovered from ratepayers.

PG&E has issued RFPs for sales (auction) of the credits in the past.  The 
credits have been sold to Duke (Moss Landing) and to Southern and Calpine for 
Morro Bay and Oakland facilities.  They were price-only bids.  The after-tax 
proceeds went to benefit ratepayers through reducing the over-all CTC.

All of these sales necessitated an 851 application (transfer of utility 
asset), but it appears these transfers went without a hitch.  ORA supported 
the mechanism.  There was no CEQA requirement on the basis that the credits 
were associated with an existing facility or that a new or modified facility 
would acquire appropriate air emissions permits.

If PG&E were to keep the ERCs, it would need to file a 377 (utility 
retention) and show that it is in the public interest for the utility to 
retain.  Considering that the utility appears to have no real use for the 
credits, it would be a difficult showing.  The credits do not appear to be 
part of PG&E's settlement proposal to transfer the hydro assets to its 
affiliate.  

So, PG&E has sold the credits in the past.  They have been sold to new owners 
of PG&E facilities.  The big questions is how can we encourage PG&E to 
initiate another sale.  Their shareholders get no real benefit, as it appears 
likely that PG&E can recover all of their CTCs, pending valuation of their 
hydro facilities.  

I would suggest that we approach PG&E on their willingness to auction a 
portion of these credits on a comparable basis to its other auctions.  (I've 
asked Mike to ascertain the amount of time involved with the previous 
auctions.)

If this cooperative approach does not succeed, we can discuss the possibility 
of applying some regulatory pressure to the valuation of the remaining 
credits.  We may also want to look at other agencies that may be anxious for 
the release of "hoarded" credits (like CEC), especially if such hoarding 
prevents new generation developments from coming on line.

Mona
---------------------- Forwarded by Mona L Petrochko/SFO/EES on 09/25/2000 
05:10 PM ---------------------------


AMO <aozols@GMSSR.com> on 09/25/2000 04:57:52 PM
To: "'mpetroch@enron.com'" <mpetroch@enron.com>
cc:  
Subject: ERC Auctions


 - X16872.DOC