High-level meetings took place between officials of the Clinto 
Administration, Governor Davis and other parties on Tuesday night (Ken Lay 
and Rick Shapiro attended for Enron). The parties agreed to continue the CA 
talks at Treasury and to suspend the FERC process.  The FERC chief judge and 
FERC staff attended the meetings at Treasury on Wednesday.  The Tuesday 
meeting is called the meeting of "principals."

Apparent   Process
Tuesday meeting gave two assignments to us.  
 (1)  Develop framework for auction for long-term contracts and resolving QF 
issues
 (2)  Develop framework for dealing with utility debt, including supplier 
"forbearance"

Long-term contracts--Attended by Sue Mara
 -- After much debate, divided into three subgroups:
  (a) Timeline/Implementation
  (b) Utility Needs/Product definition/RFP development
  (c) Standard Contract Development
 -- Timeline -- I was the lead and we completed our assignment.  We agreed on 
an aggressive schedule   with power flowing by 2/1/01.  The process is set up 
for DWR, working with a consultant.  It's an   RFP rather than an auction 
process. The idea of a  mock auction was rejected.
 --  Product definition -- Much work needed here.  Major issue set forth 
below.
 -- Contract -- Most parties (including Enron) want to use the EEI standard 
contract.  Group working on   additional provisions.  Plan final contract by 
Friday.
Utility Debt -- Attended by Sarah Novosel
 -- Report later

Major Issues from Long-Term Contracts

NEW MAJOR ISSUE:  Utilities revealed late on Wednesday that they want the 
State to assume the role of their portfolio manager and claimed that this had 
been their idea all along.  In their view, the utilities provide a forecast 
and the State takes on the entire risk of meeting the unmet load of the 
utilities.  They were unwilling to commit to any time frame.
Kind of Auction or RFP -- a.k.a What does the Governor really want?  Many 
people in the room believe that the Governor was firm in his demand for 5.5 
cent power for ALL the unmet load of the utilities.  We spent four hours 
debating these issues.  In the end, the parties felt that the best approach 
would be to have simulataneous auctions as follows:
 -- Separate bids for NP 15 and SP 15
 -- RFP 1 -- Suppliers submit bids for more than one product with a blended 
price of 5.5 cents.
 -- RFP 2 -- (Considered closest to the Gov's proposal) State sets price of 
5.5 cents and suppliers compete    on term and volume.
 --RFP3 -- Suppliers provide bids for any of the utilities' product needs and 
are free to bid any price,    volume or term.
 -- All RFPs would be conducted simultaneously.  Parties agree that RFP3 is 
most likely to get the
   greatest number of bids.
  
Next Steps
Meetings continue on Thursday
Plan is to have final documents ready for the next meeting of the principals
Principals tentatively set to meet on Friday or Saturday.