---------------------- Forwarded by Mona L Petrochko/SFO/EES on 09/26/2000 
04:46 PM ---------------------------


Mona L Petrochko
09/26/2000 04:40 PM
To: Michael McDonald@ECT, Laird Dyer/SF/ECT@ECT, Edward Hamb/HOU/EES@EES, 
Roger Yang, Dennis Benevides/HOU/EES@EES, James M Wood/HOU/EES@EES, Greg 
Cordell, Douglas Condon/SFO/EES@EES, Martin Wenzel/SFO/HOU/EES@EES, Chris 
Hendrix/HOU/EES@EES, Jennifer Rudolph/HOU/EES@EES, Peggy Mahoney/HOU/EES@EES, 
Karen Denne@Enron, David Parquet@ECT
cc: Mary Hain@Enron, West GA, James D Steffes/NA/Enron@Enron, Harry 
Kingerski@EES, Cristina Zavala/SF/ECT@ECT 
Subject: SDG&E's Bilateral Contracting Authority

As of 9/21, the Commission approved SDG&E's authority to enter into bilateral 
contracts.  I have not received the final, however Cmmr. Bilas' alternate 
pages were adopted and incorporated into the decision.

The decision maintains existing participation levels for forwards markets:  
1900 MW for July-Sept and 1700 MW for all other months.  SDG&E may contract 
through 2005.  

Reasonableness review will be determined as follows:
"If the average price of SDG&E's bilateral transactions, delivered or 
requiring delivery over the course of an annual period exceeds the average 
price of SDG&E's corresponding portfolio of transactions...by more than 5%, 
then the Commission will initiate an reasonableness review."

The decision recognizes that the CPUC approval process is flawed and that 
"Sellers have no incentive to hold offers open to aaccommodate regulatory 
lag."  However, if the utility decides to forego approval, they will not 
receive reasonableness protection.  So SDG&E is still in a Catch 22.

It also says "we will not tolerate SDG&E refusing to enter into medium-term 
contracts because there is no per se reasonableness standard attached to 
them."  A strong admonition that SDG&E would be found imprudent for not 
entering into forward contracts and the potential that if they do, they may 
still be found to be imprudent. 

Costs associated with these purchases will be spread across all consumers, 
even in light of the fact that SDG&E's role as default provider may be 
revised in the near future through the Commission's investigation.  ARM/WPTF 
had advocated that these contracts should be allocated to small consumers 
only.