I don't agree Edison's premise -- that "direct access customers contributed just as much to SCE's procurement costs undercollection as bundled service customers." We need to make clear that we don't buy in to their rhetoric.

Here's my reasoning.

DA Customers are completely different from bundled customers. SCE had to buy power to serve the bundled load.  SCE did not buy power for DA customers.  SCE's purchases of the power to serve the bundled load coupled with high wholesale prices and an inability to raise rates was the direct reason for the undercollection. I can make the argument that the undercollection is SOLELY related to BUNDLED SERVICE.

There are two big reasons that back me up: AB 1890 and Top-down rates.  I will explain.  The utilities got what they wanted out of AB 1890 -- payments of $30 plus billion in so-called stranded costs and a real delay in any competitive retail market until their costs were paid off.  One of the tradeoffs, however, was that the utilities were at risk FOR HIGH PRICES in the WHOLESALE MARKET.  Everyone understood that if there were high gas prices or bad hydro years, the utilities would be squeezed and not collect their billions by the 3/31/01 deadline. That's the risk they agreed to.  Now, they are claiming that they were ENTITLED to that money and more.  This is in direct conflict with the statute. I can make the argument that the statute requires SCE to assume this risk and therefore any undercollection is theirs alone -- now the CPUC can bail them out -- but that doesn't make ESPs subject to any presumed "undercollection."

Now to the rates.  At the beginning of DA, the utilities did not want to do a real rate case and separate the costs of the wholesale business and the retail busness from T&D. So, they did a "top-down" calculation.  This meant that there had to be a "credit" put on the bills of DA customers to account for the costs the utility avoided by having the customers switch to DA. So, the PX Credit structure was a direct result of the utilities unwillingness to unbundle specific components of the rates.  Next, although bundled customers rates were capped, the decisions from the CPUC made it clear that there was no similar cap for DA customers -- their rates and bills would be whatever was charged by their ESPs.  However, when the utilities filed their tariffs with the CPUC, they added a cap for the PX credit that was neither proposed nor authorized by the Commission.  Enron attacked it, but got nowhere, until WPTF and Enron brought it up in the 1998 RAP Proceeding. Our argument was that the bundled rates were capped but not the bills of DA customers -- and the credit was supposed to represent the full costs the utilities avoided by not serving DA customers.  We argued that anything less is fundamentally unfair and anticomeptitive.  The utilities must have thought we had a good case, because they agreed to settle. The settlement was accepted by the Commission in the proceeding. Everyone understood that eliminating the cap on the PX Credit was primarily to allow the PX Credit to FLOAT ABOVE THE CAP when wholesale prices were high. So, we have a legal right to receive the full PX Credit/Negative CTC which is separate and distinct from any undercollection associated with bundled customers. It seems as if we should be able to prosecute this legal right. (keeping in mind I am not an attorney) 

In summary, we have leverage and should use it.

Sue


-----Original Message-----
From: Dasovich, Jeff 
Sent: Wednesday, October 31, 2001 11:12 AM
To: Mara, Susan; Steffes, James D.; Mellencamp, Lisa; Tribolet, Michael;
Huddleson, Diann; Swain, Steve; Curry, Wanda; 'mday@gmssr.com'
Subject: Proposal Edison Is Distributing to ESPs


FYI.

-----Original Message-----
From: Matt.Pagano@sce.com [mailto:Matt.Pagano@sce.com]
Sent: Wednesday, October 31, 2001 1:05 PM
To: Dasovich, Jeff
Subject: DA Credit 


Hi Jeff,

Please find below SCE's proposal to settle past Direct Access Credit issues
and determine the Direct Access Credit going forward. Please forward this
to any other Enron participants to review prior to our conference call with
John Fielder, November 1, 2001, 11:00 a.m. PST.

(See attached file: DA Proposal.doc)

Thanks.

Matt Pagano
Account Manager
ESP Services Division
tel-714-895-0222
fax-714-895-0347
Email-Paganomj@SCE.Com