Sorry about the Greek in the first paragraph of my last E-mail.  I still 
can't figure out how I did that.  All I said was, as you know, CMUA filed a 
complaint with FERC asking for cost-based rates and introducing an outline of 
an answer to the legal issues.  

Under the FERC rules, we are required to file an answer to the complaint.  I 
have also asked Seabron for an estimate for answering the economics 
assertions raised in CMUA and PG&E's filings.
---------------------- Forwarded by Mary Hain/HOU/ECT on 10/18/2000 11:18 AM 
---------------------------


Mary Hain
10/18/2000 10:37 AM
To: Christian Yoder/HOU/ECT@ECT, steve.c.hall@enron.com, Richard Sanders, 
Susan J Mara/SFO/EES@EES, Mona Petrochko, jdasovic@ees.enron.com, Paul 
Kaufman/PDX/ECT@ECT, James D Steffes/NA/Enron@Enron, Joe Hartsoe@Enron, Sarah 
Novosel/Corp/Enron@ENRON, James E Keller/HOU/EES@EES, Mike D 
Smith/HOU/EES@EES, Harry Kingerski/HOU/EES@EES, Dennis Benevides, Tim 
Belden/HOU/ECT@ECT, Robert Badeer/HOU/ECT@ECT, Jeff Richter/HOU/ECT@ECT
cc: Christi Nicolay, carrrn@bracepatt.com 
Subject: Proposed Answer of CMUA's Complaint

As you have already heard, California Municipal Utilities Association filed a 
complaint with FERC asking for cost based rates. The following is a brief 
outline of an EPMI/EES answer to the complaint.  The answer is due Friday.  
Please send me any comments ASAP. 

? The complaint should be rejected because it wrongly assumes that the 
Commission has no option to ensure just and reasonable rates but to require 
cost based rates because there is no low cost solution to the problems 
currently faced by the California markets.  We should attach our white paper 
to our protest and state that the paper explains how these problems could be 
solved at little or no cost to the customers.  
? I list here, for your information, the reasons CMUA claims that markets are 
not competitive (these reasons will not be re-listed in the pleading). 
? 2000 prices greatly exceeded 1999 prices without regard to load.
? zonal constrained prices, even in the off-peak hours, do not reflect 
competitive outcomes for low load conditions.  
? even small players can be price setters
? The changes required are additional generation, transmission, and demand 
response and will cost tens of millions of dollars and take lengthy periods 
of time to implement.
? There is no evidence that markets will ensure just and reasonable rates in 
the near future.
? CMUA asserts that with the advent of electric restructuring, the Commission 
has increasingly allowed energy and ancillary services to be sold at 
market-based rates.  However, CMUA is wrong in the context of the West where 
there has been market-based trading of electricity before electric 
restructuring, since the FERC approved the Western Systems Power Pool,s 
contract in 1991.  The Commission,s rules didn,t create the wholesale market 
in the past, the market did and it was running fine until it was messed up by 
certain market rules were imposed that are enumerated in our paper.  The 
problem is not the market-based rates.  The problem is the market rules.
? CMUA,s motion does not address how market-based rates would be calculated 
for marketers that do not sell power from their own resources, let alone 
reflect the trading of basis points.  Almost all of the power EPMI sells is 
power it has bought from some other marketer or generator.  Many of EPMI,s 
deals are done through brokers such that EPMI does not find out the identity 
of the seller until after a deal has been struck.  Accordingly, EPMI gets no 
information about the cost of the underlying generation. 
? If FERC doesn,t try to fix the market but simply takes away our 
market-based rates, since there,s is no basis for us to set cost based rates, 
we would go out of business.  Besides there,s no reason to take away our 
market-based rates because we are not exercising market power.  So if FERC 
could fix the problem with a less onerous solution (as we,ve proposed in our 
white paper), requiring cost-based rates would constitute a regulatory taking 
of our business and we would have to be compensated using the constitutional 
standard. 
 CMUA does not provide any expert testimony to support its position.  Rather, 
its evidence is &drawn from materials prepared and testimony delivered by the 
California ISO and other public sources.8  Beyond the difficult evidentiary 
issue posed by the fact that CMUA cannot swear to the veracity of information 
produced by third parties, EPMI would have no opportunity to conduct 
discovery or cross-examine of such &witnesses.8