OK.  I'll take a shot in answering your questions, Steve. Others are free to 
comment as well.

The transmission issues in the ISO are greatly lessened.  If you talk to the 
traders, they LOVE it.  Before April1, 1998, they had no sales to CA.  Now, 
they have millions of dollars of sales.  Why?  -- no transmission access to 
speak of before the ISO took over.

We still have some problems, however.  The problems have been there since day 
one and FERC has punted on them.  We have a huge FERC case dealing with many 
of them.  We also appealed a stupid FERC order on Path 15 probably at least a 
year ago and have heard nothing from FERC on it. The traders have also 
seriously considered a FERC complaint on Path 15.

So, what are the access issues?

Path 15 is the major constraint point between northern and southern CA.  Has 
been for years. The transmission fix is basically adding a third intertie 
line between Tracy and Tesla. When I left PG&E in 1996, the estimated coast 
was $300 million.  The congestion costs did not justify building the line 
then.

PG&E continues to control Path 15 and tells the ISO what's left after PG&E 
allocates the capacity and decides what the rating is and when it changes.  
There is no transparency.  PG&E has the ability to use Path 15 to advantage 
Diablo Canyon given the existing contracts.  Carl has looked into it somewhat 
and doesn't think PG&E is, but;... The ISO says it can't interpret PG&E's 
contracts with the munis and filed some funky thing with FERC about how it's 
some kind of overseer -- we protested and have now appealed.  The munis have 
been receiving preferential access since Day One -- their contracts were 
generally subservient to the IOU rights -- more like interruptible -- but 
once the ISO started, all of a sudden, the muni rights became super firm 
superceding the IOU rights (as far as we can tell from sketchy filings and 
discussions with ISO staff). That's why we have pushed the issue.  Also, 
Dynegy and Power Exchange (not the PX) have rights on Path 15.  Tim Belden 
would love to get some info on how that constaint is being operated.

Information in general is pretty sketchy on real-time transmission.  We have 
complained to the ISO about how the ISO knows what's going on in transmission 
(as do the utilities), changes what it does, which then changes prices, and 
then doesn't tell us until after the fact.  The ISO has promised to do 
better, but I don't think has implemented any real changes yet.

Advantageous access.

Except for what's going on in Path 15, I don't think the IOUs have any 
advantages on access -- except with respect to Regulatory Must Run resources 
like nuclear and hydro -- but I think it's resource specific, rather than 
owner specific. The munis are another story.  See next item.

Munis Preference

This is a huge issue here and I assume across the country.  In making a 
devil's bargain with the munis, the FERC has put the ISO into an untenable 
situation.  The "sanctity of contracts" under any and all conditions has 
created preference for incumbents (not the IOUs -- but everyone who had a 
transmission contract with the IOUs) and poor rights for those poor schlepps 
like us who have come into the new market.  The ISO cannot operate the system 
this way and is forced to give the munis/Dynegy more than they had originally 
and to let them do things no one else can do (e.g., some munis get to change 
their schedule after the actrive hour begins, some get to do it every half 
hour, so far most haven't had to pay for ancillary services, etc.) 

There are many, many examples of how we are discriminated against (in 
addition to Path 15) and of how FERC has shined us on -- but yet we fight on. 
The most recent muni giveaway is the litigation surrounding the "new" 
transmission charge for CA -- into this has been entangled the rules for 
munis joining the ISO.  The munis want huge handouts to join. And part of the 
"new" T rate includes hundreds of millions of subsidies for munis -- I've 
pointed out that this amounts to the IOU's customers paying for the munis' 
stranded transmission costs, when they are already paying for the IOUs' 
stranded generation costs, but this argument fell on deaf ears in the ISO.  
It's really not our issue, but it does make you kind of sick about where 
public policy stands in this state.

Feel free to call (415) 782-7802




Steven J Kean@ENRON
09/01/2000 07:43 AM
Sent by: Steven J Kean@ENRON
To: Jeff Dasovich/SFO/EES@EES, Susan J Mara/SFO/EES@EES, Mona L 
Petrochko/SFO/EES@EES, Tim Belden/HOU/ECT@ECT, Mary Hain/HOU/ECT@ECT
cc: Paul Kaufman/PDX/ECT@ECT, Richard Shapiro/HOU/EES@EES, James D 
Steffes/HOU/EES@EES 
Subject: 

When we have described the problems and solutions for California we have 
focussed on generation siting and flexibility to hedge.  We have stayed away 
from transmission issues on the assumption that California, with its ISO and 
PX, does not suffer from the same discrimination issues as other parts of the 
country.  Is this true?  Does California's system layer in priorities for 
utility use of the system -- eg doesn't PG&E control "path 15"?  Does that 
control provide advantageous access to PG&E?  Are there other examples and 
are there links between these "preferences" and the current problems in 
California?  As we are trying to convert reliability and pricing concerns 
into FERC action these would be helpful arguments to have available to us.