As you know, the SVMG Energy Committee plans to discuss variable pricing,
specifically Severin Borenstein's proposal, at its next meeting on Monday. A
copy of his proposal is attached. As I indicated at last week's meeting, I
believe the SVMG should consider endorsing the proposal, with certain
conditions, for the following reasons:

- It provides the broadest, most transparent incentive to reduce consumption
precisely during hours of shortage, thereby reducing the chances of
involuntary curtailments (blackouts).

- It creates a demand response to high prices, thereby reducing the market
power enjoyed by power sellers. This may be one of the only factors
contributing to a more reasonable, stable wholesale price environment if
there is no federal intervention.

- It offers a financial opportunity for those users who are able to reduce
their demand overall or shift their demand to off-peak periods.

The following is a "strawman" draft of an endorsement by SVMG for discussion
Monday. I would point out that the strawman is silent on the question of
whether customers who choose to opt out of variable pricing must be
interruptible, an issue of concern to some. Also, I hope to have additional
input from Barbara Barkovich before Monday's meeting.

Thanks.

Peter Evans

____________________________

Power prices paid by customers must create the incentive to reduce demand
during specific hours of supply shortage (and high prices). This gives the
greates possibility of getting through this summer without running up a
staggering DWR bill and suffering through frequent blackouts. Getting people
to reduce demand in response to higher prices would also reduce the market
power of sellers. We therefore endorse the proposal to price power use above
historical levels (and rebate for power use reductions below historical
levels) at the real-time energy price.

Our support for this concept includes the following conditions:

1. Historical consumption levels, which would be served under regulated
rates, would be based on last year's use, taking into account the customer's
historical load profile. Adjustments would be made for increases/decreases
in number of employees or number of square feet per electrical meter to
account for changes in business volume. Historical consumption served
under regulated rates could be adjusted by a ratio (say 75% to 95%) to build
in some expectation of conservation.

2. Participation

All customer classes would participate. In the absence of real time load
data (i.e. residential customers), monthly consumption deviations from
historical levels would be priced at the monthly average spot price.

3. Alternatives for Above-Baseline Use

It must be explicitly clear that customers have completely unfettered
ability to procure power for their above-historical power requirements on
their own if they choose to. This could include self-generation, bilateral
forward purchases, or purchasing at the spot price from the DWR.

4. Sunset

This approach should automatically terminate at the end of 2001, requiring
government or regulatory action to extend it.

 - RTP proposal 32901.doc