Assembly Committee held a hearing on ABX1-18  Hertzberg, the speaker's 
vehicle for allowing DWR to purchase power for the state and to use revenue 
bonds to payoff utility undercollections and to finance ongoing DWR operating 
costs.  We have forwarded by fax the latest version of this bill.    The 
Assembly Committee was only able to discuss three sections of the bill before 
adjourning until 1 pm tomorrow.  Chairman Wright expects to take the 
remainder of the afternoon tomorrow to go through the bill line by line and 
expects to only get part way.  He anticipates no hearings over the weekend 
and more hearings to follow Monday through Wednesday next week.  Thus no vote 
on the bill is expected for a while. In addition, all parties, including 
Wright expect amendments as a result of ongoing negotiations between the 
Governor, Speaker, the utilities and the generators.  These would center on 
the price the generators will bid and how much if anything the utilities will 
have to absorb of past undercollections.  There is no indication at the 
present of when they will show or what those amendments will say.

Initial analysis of the bill raises the following issues:

Most important issue   On pages 3 - 8 of the bill, new provisions are added 
to AB 1890 (Section 368 et al) to define how the TRA and TCBA are to be 
calculated and what the Commission must allow in rates.  These provisions 
appear unduly generous to the utilities and may well provoke an immediate end 
to the rate freeze if enacted.  Here are the main elements of the language.

368.2  The Legislature finds that it is appropriate to allow the utility to 
recover the reasonable costs incurred to purchase wholesale energy.  (that 
means the big under collection from summer 2000 to date)

368.3  New definitions of the "adjusted TCBA" and "net undercollected 
amounts" are provided which appear to provide for the following way of 
wrapping up transition cost ratemaking.

1.  The TCBA is the positive balance as of 12-31-00 increased by the trust 
transfer amounts to be recovered in rates for 2001, also increased by amounts 
included in retail rates for prior period costs (if any are authorized by the 
CPUC), and also increased by the balances in the generation memo accounts as 
of 12-31-00.  
2.  The new "net  uncollected amount" that the utilities could collect in 
rates would be the current TRA account, as reduced by the above defined 
balance in the TCBA as of 12-31-00.  

NOTE: Edison claims this is the same mechanism that Enron proposed to the 
Commission as an alternate to the TURN proposal.  It has similarities to the 
comments we filed Nov. 9, but our official position is still to support the 
from-the-begining netting of the two accounts as proposed by TURN.

3.  There is also language to lock in the CPUCs current ratemaking for these 
accounts so that the TURN proposal to net the TRA and TCBA cannot be 
implemented.

4.  The utilities'retained generation will be put in rate base at book value, 
except for the nukes, which will have their rate base calculated WITHOUT the 
application of overcollections in the transition cost balancing account to 
accelerate depreciation.

5.  The CPUC is supposed to establish a dedicated rate component within the 
existing rates as of 1-8-01 to allow recovery of the net undercollection (the 
large TRA undercollection as reduced per the above).  The undercollection is 
to be amortized over 10 years.

6.  The utilities will not have to buy power if their credit rating drops 
below BBB+.

The remainder of the bill has to do with the mechanism for the DWR to 
purchase power and to have revenue reduction bonds pay for costs in excess of 
those recovered in the utilities rates.  Rod Wright is seeking a "stop 
loss"provision which will force a rate increase once the DWR has used up all 
its appropriation and all the bond revenues to buy power.  This is 
controversial with the other members.

We have been asked for a reaction by the committee members and would like a 
response ASAP, certainly by mid-day Friday.  This will require balancing the 
concerns about and early end to the rate freeze with the increased likelihood 
of payment for power transactions once DWR is funded.  The prospect of 
successful participation in more auctions is unclear unless more practical 
auction terms are used.  However, the auction process is not spelled out in 
this bill. The generators are supporting an early end to the freeze so that 
they can be paid...I  am in meetings starting early in the am so I will not 
be on the 10:30 call, please send comments to scott govenor..either by e mail 
or by fax, his fax is 9164480816.  I am also interested in how we should 
"message" this.