Attached is a Draft Decision approving SDG&E's Emergency Motion for authority 
to enter into bilateral contracts.

The decision directs to enter into bilateral agreements that will expire by 
12/02.  It provides similar reasonableness guidance as provided to SCE 
(bilateral contracts must be within 5% of actual annual procurement costs).  

The draft decision rejects SDG&E's request to allocate those contracts to 
residential and small commercial customers.  It rejects SDG&E's request for 
an exemption from the affiliate rules, which would have allowed SDG&E to 
enter into bilateral agreements with its trading affiliate without posting 
those transactions or providing an opportunity for a bid process.

Because this decision adopts the same principles in the SCE and PG&E 
Decisions, I give a low probability to changing the decision language.  
However, if folks would still like us to weigh in on an issue, please let me 
know asap.  Thanks.

Mona
---------------------- Forwarded by Mona L Petrochko/SFO/EES on 08/28/2000 
03:18 PM ---------------------------


"Daniel Douglass" <douglass@ArterHadden.com> on 08/25/2000 05:26:31 PM
To: <JBarthrop@electric.com>, <mnelson@electric.com>, 
<rschlanert@electric.com>, <Bruno_Gaillard@enron.com>, <kmagrude@enron.com>, 
<mpetroch@enron.com>, <susan_j_mara@enron.com>, <athomas@newenergy.com>, 
<Jeff.Hanson@phaser.com>, <anchau@shellus.com>, <andrew.madden@utility.com>, 
<ben.reyes@utility.com>, <chris.king@utility.com>, <david.bayless@utility.com>
cc:  
Subject: Draft Decision Issued in SDG&E Emergency Motion



ALJ Cooke has issued the attached draft decision with regard to the August  
9, 2000, emergency motion filed by SDG&E to enter into bilateral power  
contracts.? SDG&E sought similar authority to that granted to Edison  and 
PG&E in D.00-08-023.? The draft decision would grant the motion,  but would 
impose certain conditions different from those requested by the  utility.? 
The differences are summarized below:
?
Background
Under the terms of the  Commission,s D.00-08-021, SDG&E is currently 
authorized to participate  in the PX forward markets for energy services, 
subject to seasonal trading  limits, through the end of the last utility rate 
freeze.? SDG&E is not  proposing an increase to the limits approved in 
D.00-08-021 and will treat its  capacity purchases under those limits, 
although it reserves the right to request  expanded authority in the future.? 
The draft decision also notes that  SDG&E proposes that costs associated 
with, and gains/losses from these  bilateral contracts should be attributed 
only to small commercial and  residential customers.? It also notes that 
intervenors focused on four  general areas of concern regarding the specific 
authority requested by  SDG&E: duration of contracts, reasonableness 
standards, request for  exemption from affiliate rules, and ratemaking.
?
Duration of  Contracts
SDG&E requested  authority to enter into bilateral contracts that expire on 
or before December  31, 2005.? The ALJ notes that the Commission recently 
instituted an  investigation into the impact of the functioning of the 
wholesale electric  market on retail rates in SDG&E,s service territory and 
that the OII  will consider whether SDG&E should be removed from that default 
provider  role.? The ALJ states that, "the Commission should not compromise  
future long-term solutions by affording SDG&E greater purchasing authority  
than is needed to address the current emergency situation.? For this  reason, 
we limit SDG&E,s authority to what we described in D.00-08-023  as near-term 
bilateral contracting authority, that is, contracts with delivery  occurring 
on or before December 31, 2002."
?
Reasonableness  Standards
The draft decision  suggests that the OII provides a forum to establish a 
common framework for all  three utilities for determining the reasonableness 
of their bilateral  purchases.? However, in the interim, it adopts the same 
reasonableness  standard for near-term contracts as it did for SCE.? "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, delivered or  requiring 
deliver over the same period, by more than 5%, then the Commission  will 
initiate a reasonableness review.? Reasonableness reviews, to the  extent 
needed, will take place as part of SDG&E,s Annual Transition  Cost 
Proceeding."
?
Affiliate Rules  Exemption
SDG&E's request to be  exempted from the affiliate rules for any purchases 
from affiliates was  denied.
?
Ratemaking
TURN  urged the Commission to reject SDG&E,s request to limit the ratemaking  
impacts of the bilateral contracts to its residential and small commercial  
customers, saying that, "the potential risks and benefits should be spread  
among all customers."? The draft decision states that, "we do not  believe it 
prudent to limit the cost exposure for these contracts solely to  residential 
and small commercial customers.? This aspect of  SDG&E,s motion is denied."
?
Transparency  Considerations
The ALJ orders SDG&E  to disclose all bilateral transactions to the Energy 
Division on a confidential  basis in a monthly report.? The draft decision 
notes that, "WPTF and  ARM argue that additional transparency of bilateral 
transactions is required,  compared to that proposed by SDG&E.? We adopt 
consistent disclosure  standards for SDG&E bilateral contracts as that 
adopted in D.00-08-023 for  PG&E and SCE.? This issue may be revisited on a 
going forward basis in  I.00-08-002."
?
Response Time
The normal response time  has been shortened.? Parties to the proceeding may 
file comments on the  draft decision no later than noon on September 5, 
2000.? I suggest that  comments be filed agreeing with the thrust of the 
decision, but strongly  advocating that SDG&E be required to publicly post 
its transactions, as it  agreed to do in Advice Letter 1234-E, with regard to 
SDG&E's participation  in the Block Forward Market.? In addition, we should 
consider whether to  refight the issue of limiting the ratemaking impacts of 
the bilateral contracts  to SDG&E's residential and small commercial 
customers.
?
Comments or  suggestions???
?
Dan

 - ALJ Cooke Draft Decision.doc