All:

PricewaterhouseCoopers (PWC) performed a proprietary analysis for the Creditors Committee.   I have had a chance to overlay this PWC projection of PG&E's revenue requirement to cover retained generation, QF and bilaterals, an estimate of the undercollection and the DWR revenue requirement to analyze the sufficiency (headroom) in current rates.   Note, there is a outstanding rate case on the generation component of rates for the IOU's.   I included three sections below.  The first illustrates that unevenness of DWR's cash needs.   The second displays the costs across all sales volumes.   The third displays unit costs based on PG&E and DWR's revenue flows and their volumes provided.  

This analysis indicates that there is a slight amount of headroom for PG&E (0.254 cents).  


1. The DWR Revenue Recovery allocated to PG&E is as follows (along with a Last Twelve Months running balance):

                          Revenue
Quarter   Revenue (thd)  LTM (thd)

Q1 2001    $  105,118
Q2 2001    $  382,142
Q3 2001    $  612,808
Q4 2001    $1,031,244   $2,131,312
Q1 2002    $  924,185   $2,950,379
Q2 2002    $  583,401   $3,151,638
Q3 2002    $  695,644   $3,234,474
Q4 2002    $  863,144   $3,066,374


2. Assuming the 2002 DWR revenue requirement, a large amount of undercollection recovery at $6 Bln ($8.5 Bln minus $2.5 Bln in cash) and using PWC's projection, across all amounts billed:

                                         Sales     Rate     Revenue
                                         (GWh)   (per Mwh)  ($ Bln)
a) PWC Retained Gen, QF & Bilaterals     75,537    4.003     3.024 
b) Amortize $6 Bln, 12 years at 7.5%     75,537    1.001     0.756
c) DWR requirement                       75,537    4.059     3.066
d) Headroom in existing rates            75,537    0.254     0.192          

e) Total                                 75,537    9.317     7.038



3. Looking at the revenue on the volumes provided (PG&E at 46,881 GWh and DWR at 28,656 GWh) yields:

                                         Sales     Rate     Revenue
                                         (GWh)   (per Mwh)  ($ Bln)
a) PWC Retained Gen, QF & Bilaterals     46,881    6.451     3.024 
b) Amortize $6 Bln, 12 years at 7.5%     46,881    1.613     0.756
c) DWR requirement                       28,656   10.699     3.066
d) Headroom in existing rates            75,537    0.254     0.192          

e) Total                                 75,537    9.317     7.038



Note interest is capitalized until Sept 1, 2002 and the principal payments into the Debt Service Account do not begin until March 1, 2003.  If spot purchase curves do not move, there could be some relief by this price backwardation in 2003 from the mounting debt service cash needs at DWR.  



Regards,


Michael