FYI



To: Scott Stoness/HOU/EES@EES, Dennis Benevides/HOU/EES@EES
cc: Kenneth Lee/HOU/EES@EES, Neil Hong/HOU/EES@EES 
Subject: California Legislative Strategy

Per our discussions yesterday, SCE and PG&E are currently negotiating with 
customer groups to propose legislation that would result in a Rate 
Stabilization Plan that would extend beyond the AB1890 rate freeze.  The 
purpose of the negotiations is to build inertia to move a bill at the 
legislature.  The legislative session ends this week and will not reconvene 
until next year, unless there is a special legislative session.  I hear from 
Government Affairs that the current  negotiations has stalled.  
Unfortunately, customer groups would not know a good deal if it hit them in 
the face.

SCE and PG&E threaten to artificially end the AB1890 rate freeze early and 
forego CTC recovery.  The utilities would end the freeze as early as January 
1, 2001, in lieu of incurring high procurement costs that would undue their 
CTC recovery thus far.  Under the AB1890 freeze, the utilities are at risk 
for recovery of all costs under the frozen rates through March 31, 2002.  
There are two things that would prevent the utilities from ending the freeze 
early.  Under the current political and market climate, artificially ending 
the rate freeze early would be perceived very poorly.  Additionally, the 
utilities would have to forego recovery of hundreds of millions to  a billion 
dollars for CTC, Transmission, Distribution and Procurement undercollections 
(in the TRA and TCBA) per a prior CPUC decision.  It would be in the best 
interest of the utilities and customers to negotiate other mechanisms such as 
an extension to the AB890 rate freeze.  One concept that has been discussed 
is an extension to January 1, 2005.

The following is an assessment of our risks:


   January 1, 2001 Roll-Off  Current Mark   January 1, 2005 Roll-Off
PG&E   ($57.8) million    July 1, 2001   $155.9 million
SCE   ($85.6) million    January 1, 2002   $21.4 million
________  ___________________   ___________   ___________________

Total   ($143.4) million        $177.3 million

I have instructed Government Affairs to accept a deal that would extend the 
AB1890 Rate Freeze to January 1, 2005.  Government Affairs understands the 
value of an extension of the Rate Freeze between April 1, 2002 and January 1, 
2005, and our preference that the Rate Freeze in 2003.  Also, Government 
Affairs understands are preference for a Rate Cap.  Unfortunately, the 
utilities are not interested in our preferences due to their own needs.  I 
offered Government Affairs some other refinements to such a settlement, 
including:  1) the PX credit be based on spot prices; 2) a retail adder to 
the PX credit; 3) no wholesale caps; and 4) the January 1, 2005 is a "no 
later than" date (which would make it more generic to cover all utilities 
with different circumstances).  Of course, none of these amendments should be 
deal breakers.  Once again, a settlement with correponding legislation does 
not look promising at  this point in time.

Roger