Agreement in principle.  Still need to negotiate definitive contracts.  Many parties still have to agree with this proposed solution before its final (including the Legislature).  This looks very good for SCE.

Jim

---------------------- Forwarded by James D Steffes/NA/Enron on 04/09/2001 07:03 PM ---------------------------
From:	Jeff Dasovich on 04/09/2001 07:00 PM
Sent by:	Jeff Dasovich
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cc:	 

Subject:	Summary of the MOU

The following is an outline of the basic terms of the Southern California Edison Memorandum of Understanding:

?	Commitment to Provide Power - SCE will keep its current generation plants and other generation assets and commit them to provide power on a regulated cost-of-service basis for 10 years.
?	Dedication of Power - Edison International will commit the entire output of Sunrise (one of Edison International's non-regulated generating facilities) to the State on a fixed price basis for 10 years. Phase I of Sunrise is to be brought online by August 15, 2001. If not brought online by August 15, 2001, Edison International shall be assessed a $2 million penalty.
?	Transmission Sale - SCE will sell to the State its transmission assets for approximately $2.76 billion (2.3 times the net book value of the assets), subject to certain adjustments. Of the $2.76 billion, the $1.5 billion gain on sale, will be used to reduce SCE's net undercollected amount as of January 31, 2001. In connection with the purchase, the State will also assume certain liabilities associated with the transmission assets.
?	Backup Transaction - If the transmission sale does not occur within two years for reasons beyond the parties' control, then if the State elects, SCE shall sell to the State SCE's hydro generation assets. If the hydro assets are not worth $1.5 billion, then SCE will also sell the state after December 31, 2010 enough below-market-price-power to make up the shortfall.
?	Conservation Property - SCE shall grant perpetual conservation easements to the State covering approximately 260,000 acres of its Big Creek hydroelectric related lands and 825 acres of its Eastern Sierra hydroelectric related lands.  Some of the land may be deeded in fee.
?	Contribution by Edison International - Edison International will refund to SCE not less than $400 million.  This money will consist of a refund of approximately $293 million in estimated 2000 quarterly tax payments plus approximately $197 million in federal loss carryback tax savings.
?	Investment - Edison International and SCE will invest not less than $3 billion over the next 5 years in capital improvements for SCE.
?	Litigation - SCE shall dismiss certain claims, including its takings and filed rate doctrine cases.
?	CPUC Regulation - CPUC shall continue to regulate SCE using historical principles of ratemaking.
?	Payment for Portion of QF Drop-off - SCE shall pay an amount that represents that portion of the net short from January 18, 2001 to April 1, 2001 that is attributable to QF's not selling to SCE (due to SCE's failure to pay the QF's).  SCE will securitize this amount.
?	Securitization - SCE shall securitize its full net undercollected amount (approx. $3.5 billion).  The securitization shall occur in two tranches (i.e. two different nonbypassable dedicated rate components).

?	The first tranche will occur after the passage of legislation and the signing of the definitive agreements and will cover the net undercollected amount, less the gain on sale, plus interest on certain obligations in the net undercollected amount.
?	The second tranche would be triggered if the transmission sale does not occur within two years.  Accordingly, the second tranche would not show up in rates for two years, if at all.

?	Buying the Net Short - The State will be required to buy the net short through December 31, 2002.  After 2002 SCE will be responsible for covering the net short.
?	Investment Recovery - SCE shall have an authorized rate of return that will not drop below its current rte (11.6%) during the 10 year cost of service ratemaking period.
?	Next Steps (Definitive Agreements and CPUC Action):

?	Definitive Agreements - Once the MOU is signed, the next stage is to negotiate definitive agreements which contain the specific terms of the transmission sale, as well as the specific terms of the various other related agreements (e.g., the O&M Agreement, Transmission Services Agreement and the Facilities Services Agreement).
?	CPUC Action - Prior to entering into the definitive agreements, the CPUC must undertake certain actions (which include: establishing mechanisms for preapproval of procurement costs and URG costs, deferring SCE's general rate case until 2003, granting SCE some relief from direct access credits and clarifying the first priority condition in the holding company act).