Attorney Client Privilege

I suspect that the SCE Hydro proceeding should take a turn similar to PG&E's 
hydro.  Can you stay on top of it?  We estimate that Californian's would be 
better off if the rate freeze is maintained and a future value of the 
retained assets is assessed in order to avoid rate shock and maintain an 
orderly transition to the end of the freeze.  For instance, we see the assets 
being worth the following on December 31, 2001:

Mohave & Four Corners $2.7 billion
SCE Hydro  $1.6 billion
Palo Verde  $1.2 billion
SONGS  $2.8 billion
PG&E Hydro  $4.6 billion
Diablo Canyon  $4.0 billion
   ------------------
   $16.9 billion

You see this is over $16.9 billion in assets on December 31, 2001.  If these 
assets were valued as of January 1, 2001, these assets would be worth well 
over $21 billion due to the current high market prices.  The $4 billion 
difference is due to the difference in net revenues these assets are expected 
to recover in 2001.

The current issue for the utilities and California is not a balance sheet and 
undercollection issue, but rather a cash flow and supply issue.  We need to 
make sure that the CPUC and State Legislature understand the difference.  The 
cash flow issue can be solved by signals that the utilities will not be stuck 
with the entire shortfall so that the investment community will lend the 
utilities money or a loan from the State's budget surplus.  The supply issues 
is a tougher issue, but can be mitigated largely from a temporary lifting of 
Nox emission limits due to state emergencies, along with other potential 
solutions.  The utilities are trying to end the rate freeze and using the 
cash flow issue as the reason; but there real reason is to get 100% CTC 
recovery, shift 100% risk to consumers, and get the windfall profits from 
this market for their retained generation, while putting customers in an 
unstable market.  The best rate stabilization plan is to keep the rate freeze 
in place, let the market mobilize to (a) build power plants, (b) resolve 
default service, (c) allow large customers an opportunity to shop, and (d) 
get DSM projects underway for 2002 and beyond, reconcile the balance sheet by 
the end of 2001, re-evaluate the nuclear settlements to avoid windfall 
profits to utilities and rate shock to customers, and determine the 
additional recovery of shortfalls on a going forward basis over some extended 
period of time.

The last thing the State of California should do is to introduce the 
instability of the market to customers, driving away business and 
accelerating the State into a recession that will be difficult to recover 
from for many years.  As I previously mentioned, the State will still need to 
address the issue of cash flows and supply, and will have to make some 
accomodations in order to avoid problems in California.

Roger  

P.S.  I read in the paper the CPUC President Lynch stated at the Decision 
Conference that it would be premature to end the rate freeze right now.  Is 
this true?  Do you think they understand it is more of a cash flow issue 
versus a balance sheet issue.






JMB <JBennett@GMSSR.com> on 12/07/2000 02:41:25 PM
To: "'RYANG@ENRON.COM'" <RYANG@ENRON.COM>
cc:  
Subject: Status of SCE's Divestitures


Roger  --

Here is an update on what's going on with SCE's divestiture proceedings:

(1) Mohave -- this application has followed a weird course.  SCE filed an
application in October of 1999 to divest its share of Mohave.  In a decision
issued in April (D. 00-04-009) the Commission found that SCE's ownership of
its interest in Mohave was no loner necessary or useful under Section 851 of
the Public Utilities Code and authorized SCE to go ahead with an auction of
its interest.  In that order the Commission directed SCE to make a
divestiture compliance filing after the auction was completed.  SCE did that
in June (AES was to purchase SCE's share for $533 million).  In September
the Utility Workers Union of America filed a Petition in the proceeding
asking to intervene in the proceeding and arguing that the sale of Mohave
was no longer in the best interests of electric consumers in California. The
Commission held a hearing on the petition.  On December 5 (i.e., two days
ago), the Commission issued a PD in which it granted the UWUA's petition and
stayed any further action in the application until further order of the
Commission.  In other words, SCE is not authorized to make the sale to AES.
The PD states that the issue of whether Mohave is "necessary and useful"
under Section 851 standards will be subsumed in the Investigation into the
Wholesale Market (I. 00-08-002).


(2) Palo Verde and Four Corners -- The application to divest these
facilities was filed in May 2000.   TURN filed an application to dismiss the
application in November.  No ruling on that motion has been issued as of
yet.  Currently the applications are still due to go to hearing in February
2001.  What has just happened in the Mohave case, however, does not bode
well for these applications.

(3) Hydro -- SCE's hydro application (filed in December of 1999) went to
hearing in September of this year.  As of yet there has been no PD.


Call if you have any further questions.

Jeanne