The following justification is intended to support potential deDASR decision 
for SDG&E service territory accounts.

For Bundled Contracts (EES & EEMC), EES is responsible for managing all 
components of the customers bundled bill except taxes.  Such components 
include energy and all UDC related charge components (CTC, post-transition 
period CTC, transmission, distribution, nuclear decommissioning costs and 
public purpose programs, i.e. the CA fully bundled bill).  Enron has 
leveraged its risk management skills to manage the risks associated with the 
regulatory risk embedded within its retail contracts.  The discount off 
tariff product provides the Enron customer with certainty regarding the 
magnitude and duration of savings derived from deregulation in California.  
These contracts span the AB1890 transition period and typically brought 
expected deregulation savings forward for the customer and levelized the 
savings over the contract term.  EES hedges its risk by buying Energy in the 
same manner as the Utilities during the transition period and locking in 
supply at fixed prices when customers are exposed to full spot market prices. 
 During the regulated AB1890 transition period, the utilities pay ESPs a PX 
credit equal to the fully bundled tariff price minus the avoided cost of 
energy procurement (the PX-credit).  EES hedges the T&D, and CTC regulatory 
risk though a variety of hedging activities including interest rate swaps, 
development of bundled service index products, electric commodity and other 
fuel related hedging activities and intervention in Utility regulatory 
proceedings on behalf of our bundled service customer base.  The ability to 
source from the UDC is implicit within any contract that transfers the price 
risk for all commodity and UDC-related (non-commodity) costs to Enron.  In 
February, 2001 Enron chose to resource its supply for its SCE and PG&E 
locations from the host Utility.  This resourcing decision was necessary as a 
result of :  a) PG&E/SCE non-compliance with the AB1890 tariffs (Rule 22), b) 
the demise of the California PX and lack of a liquid hourly market necessary 
to follow a retail customer load shape and c)  to protect our retail customer 
base against potential discriminatory treatment upon their return to Utility 
Service upon expiration of their Enron retail energy service contract.

Current legislation is now pending that may again provide regulated bundled 
service rates for SDG&E customers.  This legislation has the potential to 
provide for the discriminatory treatment of direct access service customers 
upon their return to Utility default service at the expiration of their DA 
contract term.  Upon passage of such legislation, it is imperative that 
bundled service and direct access customers continue to be treated in a 
comparable manner.  This was a fundamental principle of California 
deregulation.  The passage of such legislation, would result in the continued 
need for SDG&E to calculate a PX credit associated with energy deliveries by 
third party ESPs.  Under AB1890, the credit is equal to the fully bundled 
contract price minus the spot market value of the energy plus associated 
delivery costs imposed on the Schedule Coordinator.  The energy only portion 
of the SDG&E customer bill has continued to be calculated and posted on the 
SDG&E ESP website even after the suspension of the SDG&E rate freeze in July, 
1999.  New legislation with a fixed generation rate applicable to SDG&E 
bundled service customers which allowed for collection of resulting UDC 
undercollections in future time periods from all customers (including 
existing DA customers who later return to UDC bundled service) essentially 
constitutes a return to the AB1890 transition period mechanism for SDG&E.  
Such legislation may also prevent the establishment of critical mass 
necessary to support development of a liquid hourly market within California 
necessary to follow a retail customers load shape without the existence of 
the PX.  In the event of such a reregulation rate freeze, AB1890 and the 
existing SDG&E tariffs should also make SDG&E liable for such "PX-Credits" to 
ESPs who have entering into bilateral Bundled Service contracts under the 
AB1890.  In the event that the rules, tariffs or legislation are modified to 
no longer provide for such PX-credits, EES could preserve the commercial 
practicality of its CA Bundled Service Contracts by resourcing its supply for 
EES/EEMC customers located within SDG&E service territory directly from SDG&E.