I think the implementation plan for the Res and Small Commercial makes good 
sense.  This is good intelligence for preparing our curves and pricing 
models; however, these customers are not our commercial focus and only tend 
to show up as a few sites in a portfolio of sites.  SDG&E's plan was our 
preferred plan to the extent that the Legislature or Commission had 
implemented a mandatory rate cap for all size customers.

With respect to the larger opt-in customers, I expect that this is only 
available to Standard Offer customers.  SDG&E should prevent cost shifting to 
other customers who do not benefit from the cap, i.e. SO customers who do not 
opt-in and DA customers who do not have the option.  Even customers who 
opt-in will vary by differing degrees in terms of the size of the customer 
and timeframe.  It seems to me, the only equitable implementation plan for 
the opt-in customers is a customer-specific balancing account, similar to 
that which is implemented for the balanced payment plan; otherwise too much 
gaming will ensue which would result in the need for administratively 
burdensome tracking.  To the extent that SDG&E makes all customers, including 
DA customers, pay for the undercollections, we can switch our customers to 
Standard Offer without any negative ramifications.  (Note: It would be 
difficult to exercise such a "regulatory switching option" if only those 
customers who benefit incur a surcharge into the future, because our 
customers would balk at us exercising the option during our contract term and 
imposing a future liability on our customer beyond the contract term.)  In 
fact, it might be better if all customers were expected to pay for the 
undercollections so that we can exercise the regulatory switching option.  
What do others think?  I think we can work with either implementation 
method.  If it is a customer-specific balancing account, we will make 
customers know that the lower rates is the equivalent to a loan they will 
need to eventually pay off.  If it is all customers who are expected to pay, 
we will exercise the regulatory switching option.  We need to be careful not 
to share too much of this strategy and insights with the utility, because 
they will counter by imposing new rules and charges for switching customers 
between DA and SO.

I don't believe that SDG&E's shareholders should be held accountable for a 
percentage of the shortfalls.  This would provide a subsidy to SO service.  I 
believe it is more important that customers realize that the utility's SO 
service is not the right solution versus trying to drive the utility away 
from SO service.  Either outcome works for us.

The last issue I will address is the timing of recovery of the 
undercollections.  Will recovery begin during the period of the cap such that 
the cap will effectively be implemented as a freeze?  Or will the recovery 
begin after the cap expires, resulting in otherwise higher future rates.  
Defering cost recovery will always work to our advantage from a book 
perspective.  The key for me is to know asap the details, so that we can 
properly model our curves for pricing new deals and reflect the changes in 
our book.  However, since these questions largely pertain to the smaller 
customers in SDG&E's service territory, I do not anticipate a large impact on 
our book and our marketing efforts.  In fact, I think the burdens of the 
modeling changes would outweigh much of the benefits of this legislation for 
us.

Thanks for the intelligence.

Roger 

 





Mona L Petrochko
09/06/2000 06:26 PM
To: Douglas Condon/SFO/EES@EES, James M Wood/HOU/EES@EES, Martin 
Wenzel/SFO/HOU/EES@EES, Greg Cordell, Chris Hendrix/HOU/EES@EES, Edward 
Hamb/HOU/EES@EES, Jennifer Rudolph/HOU/EES@EES, Dennis Benevides/HOU/EES@EES, 
Roger Yang, Harry Kingerski/HOU/EES@EES, Gary Mirich/HOU/EES@EES
cc: West GA, James D Steffes/HOU/EES@EES 
Subject: Gov. Davis Press Release

Governor has NOT signed AB 1156, $150 million from the general fund.  He HAS 
signed AB 265 (SDG&E rate cap bill) and AB 970 (expedited siting for 
non-permanent peaking).

I had a conversation today with Wayne Sakarias from SDG&E about 
implementation.   It appears, based on the press release, that the Commission 
will act tomorrow to adopt an order that will begin the implementation 
process, although the order is not available for review yet.

I asked Wayne how they intended to implement the bill.  He believes that the 
opt-in provision for large C&I customers, and any associated undercollections 
associated with the customers that opt-in, would be handled separately from 
the general application of the rate cap for residential and small commercial 
customers.  I asked how they would collect any shortfalls.   It didn't sound 
like they had a plan yet.  I suggested balancing account treatment for the 
customers that benefit from the opt-in with any shortfalls recovered as 
quickly as possible but no later than 1 year.  

Relative to Res/Small Commercial:

He said that SDG&E will propose, in response to ARM comments, that the cap 
(for res and small commercial) customers would not disadvantage DA 
customers.  In other words, they are concerned about the appearances that 
SDG&E's rates would be lower than market prices because of the cap and would 
make available to DA customers a comparable pricing mechanism, that in 
effect, would eliminate any pricing advantage by staying w/ SDG&E.  

For example:  If prevailing market prices were 7.5 cents/kWh, SDG&E's res and 
small commercial customers would only be charged upto 6.5 cents, and DA 
customers would receive a 1 cent/kWh credit against their T&D charges so that 
in effect, there is no economic advantage to staying w/ SDG&E.  However, when 
it comes time to pay the piper for undercollections, DA and bundled customers 
would again be treated comparably.

Their BIG concern is that the Commission will hang them out to dry on 
reasonableness.  

We agreed to keep the dialogue open.  Things will likely happen quickly.  If 
folks have any recommendations or see problems with the above, let me know 
asap.  Thanks.

Mona


---------------------- Forwarded by Mona L Petrochko/SFO/EES on 09/06/2000 
04:03 PM ---------------------------


Sandra McCubbin
09/06/2000 03:25 PM
To: mpetroch@enron.com, Susan J Mara/SFO/EES@EES, Jeff Dasovich/SFO/EES@EES, 
Paul Kaufman/PDX/ECT@ECT, David Parquet/SF/ECT@ECT, Samuel Wehn/HOU/ECT@ECT, 
James D Steffes/HOU/EES@EES, Steven J Kean/HOU/EES@EES, Richard Shapiro
cc:  
Subject: Gov. Davis Press Release

It doesn't look like he is going to sign the bill that takes 150 million out 
of the general fund for San Diego rate payers
---------------------- Forwarded by Sandra McCubbin/SFO/EES on 09/06/2000 
03:22 PM ---------------------------


	Joseph Alamo
	09/06/2000 03:15 PM
	
To: Sandra McCubbin/SFO/EES@EES
cc:  
Subject: Gov. Davis Press Release



OFFICE OF THE GOVERNOR

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L00:091  
FOR IMMEDIATE RELEASE
September 6, 2000  


GOVERNOR DAVIS SIGNS ELECTRICITY CONSUMER RELIEF LEGISLATION
SACRAMENTO ) Governor Gray Davis continued his commitment to easing the 
burden of San Diego ratepayers by signing two major pieces of legislation 
designed to stabilize the cost of electricity and streamline the siting 
process for new power plants. 

"One of the major achievements of this year's legislative session is our 
aggressive response to California's energy challenge," Governor Davis said. 
"My Administration did not create this problem, but we are 100-percent 
committed to solving it. And, now, after a long, hot summer of unconscionably 
high energy prices, relief is finally on the way." 

AB 265 by Assemblywoman Susan Davis (D-San Diego) and Senator Deirdre Alpert 
(D-Coronado) will stabilize the price of electricity for consumers and small 
business (including schools and hospitals) in San Diego at 6.5 cents per 
kilowatt-hour. These rates will be retroactive from June 1, 2000 and extend 
to December 31, 2003. 

"In the short term, this will ease the uncertainty of San Diego energy 
prices," Governor Davis said. "When it comes to predicting their electric 
bills, San Diego consumers have been in the dark long enough. This is an 
urgency measure. I am signing this bill today so that the PUC can take 
immediate action at its meeting tomorrow." 

As a result of this legislation, the average monthly bill for residential 
customers in San Diego will be reduced to $68. Small businesses (all schools 
and acute-care hospitals are included) will pay an average monthly bill of 
$220. Medium businesses (consuming up to 72,000 kilowatt-hours a month) would 
also have a price cap of 6.5 cents per kilowatt-hour. For large businesses, 
AB 265 would allow for a negotiated payment plan with SDG&E over a longer 
period of time. 

AB 970 by Assemblywoman Denise Ducheny (D-San Diego) and Assemblyman Jim 
Battin (R-La Quinta) will help California overcome the inadequate supply of 
energy, one of the biggest obstacles to lower energy prices, by expediting 
the siting process for new power plants and streamlining permitting for 
upgrades of old facilities. 

"Restrictions and red tape have presented a powerful disincentive to those 
who would build more power generators in California," Governor Davis said. 
"This bill will benefit consumers by increasing supply to meet growing 
demand. It will also establish new programs to reduce demand." 

Over the last three months, Governor Gray Davis' leadership has been 
demonstrated in his response to the San Diego electricity crisis: 


On June 14, he called for emergency reduction of electricity use by all state 
facilities in the San Francisco Bay area in response to electricity emergency 
and rolling blackouts. 
On June 15, he called on chairpersons of the Public Utilities Commission 
(PUC) to analyze the conditions that led to electricity shortages in the San 
Francisco Bay area the previous day, including a statewide perspective on the 
price and delivery of electricity. Report was completed, submitted to the 
governor and released on August 2. 
On July 27, 2000, Governor Davis called on federal and state regulators to 
take swift action to extend the caps on wholesale electric rates in 
California and provide San Diego ratepayers with million of dollars in 
refunds. 
In letters written by the governor to two state regulatory agencies and two 
California-based panels charged with overseeing California's power market, he 
called for a coordinated state effort to urge federal regulators to take 
strong measures to reduce power rates in both the short- and long-term. 
On August 2, 2000, Governor Davis issued three Executive Orders designed to 
reduce energy consumption by state government and speed up the time it takes 
new power generating facilities to win approval from state agencies. Please 
go to http://www.governor.ca.gov/briefing/execorder/index.shtm to view copies 
of Governor Davis' Executive Orders. 
On August 9, 2000, Governor Davis called on the Public Utilities Commission 
(PUC) to establish a two-year plan that would cut electricity rates by nearly 
half for residential and business customers of San Diego Gas & Electric. 
The governor also reached an agreement with the California Grocers 
Association that will save enough electricity to provide power to between 
50,000 and 60,000 homes during periods of peak demand, as grocers agreed to 
reduce power consumption by 10 percent during Stage One emergencies. 
On August 10, 2000, Governor Davis wrote a letter to President Clinton urging 
him to expedite the Federal Energy Regulatory Commission's investigation to 
determine whether current electric rates in San Diego were unjust. 
On August 22, 2000, Governor Davis called on President Clinton to release 
emergency funds from the Low-Income Home Energy Assistance Program (LIHEAP) 
to the state to help low-income Californians pay their rapidly-rising 
electricity bills. 
On August 23, 2000, President Clinton responded to Governor Davis' request by 
releasing $2.6 million in emergency funds to help low-income Southern 
Californians cope with the surge in their electricity bills. The president 
also asked federal regulators to speed up their investigation into the 
operation of U.S. power markets and urged the Small Business Administration 
to use its credit programs to help small firms hurt by the price increases. 
On August 23, 2000, Governor Davis reached agreement with legislators on 
legislation to provide relief to San Diego ratepayers. Today's bill signing 
is the culmination of that agreement.
# # #


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GOVERNOR GRAY DAVIS   ?   SACRAMENTO, CALIFORNIA 95814    ?     (916) 445-2841