JBennett <JBennett@GMSSR.com>
	05/18/2001 01:25 PM
		 
		 To: "Robert Williams (E-mail)" <Robert.C.Williams@enron.com>, "Richard 
Sanders (E-mail)" <richard.b.sanders@enron.com>, "Mike Smith (E-mail)" 
<msmith1@enron.com>, "Dennis Benevides (E-mail)" <dbenevid@enron.com>, 
"George Phillips (E-mail)" <gphillip@enron.com>
		 cc: MDay <MDay@GMSSR.com>
		 Subject: SCE Counter Claim -- Underreporting of Volumes -- Confidential --  
Attorney Work Product


After speaking with George Phillips yesterday about SCE's counterclaim
against EES and EEMC regarding underreporting of usage to the ISO, I think
there may be some internal confusion (of which I may have contributed to)
about the nature of SCE's counterclaim.

As I understand, from my review of certain documents received from SCE in
response to our data requests, review of an "Executive Summary" prepared by
George Phillips on the issue, and from my conversation with him yesterday,
EES and EEMC, as a result of some problems with their settlement system, did
indeed underreport customers' usage to the ISO during the time period
claimed by SCE.  This has, I believe, resulted in two separate (although
interrelated) points of contention with SCE -- of which only one is the
subject matter of its counterclaim.

First, the underreporting resulted in Unaccounted For Energy (UFE) charges
to the market.  In correspondence sent by SCE to EEMC and EES during the
last quarter of 2001, it appears that SCE was calculating the "cost to the
market" from the  EES/EEMC underreporting by applying the hourly day ahead
market clearing price to the  individual  hourly variances.  This cost to
the market is overestimated, however, as SCE failed to take into account the
fact that the ISO nets underreported amounts against overreported accounts
to get a net amount of underreporting.  This underreported amount is then
allocated to all providers of physical load within a service territory
through the assessment of UFE charges.  Thus whatever the ultimate cost was
determined to be, SCE would not be allocated the entire amount.

Second, the underreporting of usage to the ISO results, according to SCE, in
SCE paying EES and EEMC a PX credit for energy they never purchased.  This
claim is separate and apart from what SCE claims EES/EEMC cost the market in
the way of UFE charges.  What SCE is saying is that it believes that EES and
EEMC only purchased on behalf of their customers the amount of energy which
they reported to the ISO.  EES' and EEMC's customers actually used more than
the amount which EES and EEMC reported.  SCE calculated the PX credit based
on the amount used, not reported. It is SCE's claim that EES and EEMC are
not entitled to a PX credit on the delta as the market, not EES and EEMC,
purchased those volumes.

It is only the second point of contention which is the subject matter of
SCE's counterclaim.  SCE is alleging that it should not have to pay a PX
credit to EES and EEMC for volumes that EES and EEMC did not purchase.  SCE
is claiming that we only purchased the amount we reported to the ISO.  While
SCE may believe that it should not have to pay any UFE charges as the result
of  EES/EEMC underreporting, the UFE charges are not the basis of its
counterclaim.

Based on the above analysis, I think that the most critical piece of
information  to refute the counterclaim is that, despite the underreporting
of volumes to the ISO, EES and EEMC actually purchased on behalf of their DA
customers those customers' full usage. Can we make such claim?  and do we
have data to back it up?

Jeanne Bennett