Several messages were kicked back, so here goes...
---------------------- Forwarded by Mona L Petrochko/SFO/EES on 09/26/2000 
09:41 AM ---------------------------


Mona L Petrochko
09/25/2000 05:59 PM
To: Michael McDonald@ECT, Laird Dyer/SF/ECT@ECT, mday@gmssr.com, David 
Parquet@ECT, Samuel Wehn@ECT, jbennett@gmssr.com
cc: West GA, James D Steffes/NA/Enron@Enron 
Subject: ERC Auctions

The attached memo from Goodin McBride summarizes the regulatory treatment of 
PG&E's emission credits to date.

It is an interesting animal.  Basically, PG&E has kept most of the credits, 
therefore has not divested the credits with the generating assets.  However, 
these assets have been acquired for nothing, therefore they have no 
"regulatory value".  In other words, their costs are not part of PG&E's rate 
base and are not being recovered from ratepayers.

PG&E has issued RFPs for sales (auction) of the credits in the past.  The 
credits have been sold to Duke (Moss Landing) and to Southern and Calpine for 
Morro Bay and Oakland facilities.  They were price-only bids.  The after-tax 
proceeds went to benefit ratepayers through reducing the over-all CTC.

All of these sales necessitated an 851 application (transfer of utility 
asset), but it appears these transfers went without a hitch.  ORA supported 
the mechanism.  There was no CEQA requirement on the basis that the credits 
were associated with an existing facility or that a new or modified facility 
would acquire appropriate air emissions permits.

If PG&E were to keep the ERCs, it would need to file a 377 (utility 
retention) and show that it is in the public interest for the utility to 
retain.  Considering that the utility appears to have no real use for the 
credits, it would be a difficult showing.  The credits do not appear to be 
part of PG&E's settlement proposal to transfer the hydro assets to its 
affiliate.  

So, PG&E has sold the credits in the past.  They have been sold to new owners 
of PG&E facilities.  The big questions is how can we encourage PG&E to 
initiate another sale.  Their shareholders get no real benefit, as it appears 
likely that PG&E can recover all of their CTCs, pending valuation of their 
hydro facilities.  

I would suggest that we approach PG&E on their willingness to auction a 
portion of these credits on a comparable basis to its other auctions.  (I've 
asked Mike to ascertain the amount of time involved with the previous 
auctions.)

If this cooperative approach does not succeed, we can discuss the possibility 
of applying some regulatory pressure to the valuation of the remaining 
credits.  We may also want to look at other agencies that may be anxious for 
the release of "hoarded" credits (like CEC), especially if such hoarding 
prevents new generation developments from coming on line.

Mona
---------------------- Forwarded by Mona L Petrochko/SFO/EES on 09/25/2000 
05:10 PM ---------------------------


AMO <aozols@GMSSR.com> on 09/25/2000 04:57:52 PM
To: "'mpetroch@enron.com'" <mpetroch@enron.com>
cc:  
Subject: ERC Auctions


 - X16872.DOC


---------------------- Forwarded by Mona L Petrochko/SFO/EES on 09/26/2000 
09:41 AM ---------------------------


Mona L Petrochko
09/25/2000 06:38 PM
To: David Kates/SF/ECT@ECT, David Parquet@ECT, mday@gmssr.com, 
jbennett@gmssr.com
cc: Sandra McCubbin/SFO/EES@EES, jdasovic@.enron.com, Susan J 
Mara/SFO/EES@EES 
Subject: Humboldt-Attorney/Client Privilege

After a conversation today with Dave Kates, he asked me to outline some 
process and regulatory avenues as it relates to Humboldt.

1.  It appears as though early conversations have the same problems that we 
encountered with other projects.  There appears to be no internal 
coordination on the project.  The estimates for the interconnection study are 
outrageous.  There is no evidence of a commitment from PG&E to work with us 
cooperatively.

Sandi and David Parquet had met several weeks ago with Dede Hapner about 
various projects and the desire to work more cooperatively on interconnection 
issues.  David indicated at that meeting that if PG&E is not willing to 
cooperate, we will not abandon some of these projects.

After the last meeting, David Parquet contacted Jim Randolph, Sr. V.P. about 
the possibility of an MOU between PG&E and Enron.  This would go toward the 
intent to work with Enron on interconnection isues.  It appears as though 
there has been a committee formed within PG&E, supposedly to provide internal 
coordination.  However, it is still not clear whether that committee has been 
given the internal direction to cooperate with us.

Obtaining agreement high within PG&E's senior management is key to the 
success of this project.  I like the idea of an MOU.  We should ascertain 
soon PG&E's willingness to pursue such an agreement.  Assuming we receive 
some positive indication from high with PG&E's management, I believe we need 
to drive the process and establish time lines by which we need information 
with status check points along the way.  This will include points by which we 
can rightfully stop negotiations if PG&E fails to deliver its obligations in 
a meaningful way.  (Mike/Jeanne, any legal impediments to PG&E entering into 
an MOU with us for purposes of negotiating an interconnection?)

2.  Are there regulatory pressures we can leverage?  We have not intervened 
in the Humboldt application filed by PG&E.  I will find out what, if any, 
protests have been filed and by whom.  My guess is that this will be a low 
level proceeding in terms of interested parties, so leverage opportunities 
are probably low.    

PG&E has determined the value of its existing gas-fired facilities at around 
$6 million.  Our project is reliant upon PG&E shutting down those 
facilities.  If PG&E is unwilling to do so, that is essentially the end of 
the story.  If however PG&E would accept a payment from Enron equal to its 
remaining book value in exchange for shutting down its facilities, then our 
project has a chance, pending the interconnection study.  As there is no 
transfer of utility facility, I wouldn't think there would be a necessity for 
additional filings (i.e. Section 851 or 377).  (Mike/Jeanne?)

PG&E and ratepayers should be neutral.  In fact, ratepayers may be better off 
in the long-run because the new facilities would be much more efficient than 
the existing facilities.  I would assume the new facilities' emissions would 
be lower.  Currently, PG&E's facilities are probably worth more in today's 
market, than their filing indicates.  However, raising the price would not 
benefit PG&E's shareholders, as they are likely to recover all of their CTCs, 
subject to hydro valuation.  Revenues in excess of net book would go to 
ratepayers.  

SUMMARY:

We need PG&E's cooperation.  I think regulatory leverage is probably low.  
Will follow-up with any regulatory impediments that I receive from 
Mike/Jeanne relative to PG&E shutting down its existing facilities.