ATTORNEY-CLIENT PRIVILEGE

Vicki,

As you requested, this e-mail describes the current status of the 1 cent surcharge.

1.  The 1 cent surcharge was approved by the CPUC in early January.  At the time, the Alliance for Retail Energy Markets (AReM), to which we belong, had protested its application to DA customers. Nonetheless, the CPUC approved the surcharge and its application to all customers, including DA customers, because of the "emergency" nature of the situation and because it was "temporary."

2.  The 3 cent surcharge was approved by the CPUC in the March 27 order.  Once again, AReM had protested its application to DA customers.  This time the CPUC explicitly exempted DA customers and stated that the surcharge was for generation-related costs going forward.  The CPUC also made the one cent surcharge permanent but did not address its application to DA customers -- therefore, in my view, the earlier decision still stands on that issue. As AReM had suggested, the CPUC also stated that DA Customers would NOT be billed for the surcharge NOR given any credit for it.

3.  The March order required the utilities to file Advice Letters to implement the surcharges.  This was done in April (I think) but the SCE and PG&E took two different approaches.  SCE, because of billing system limitations, decided to violate the CPUC order in its implementation -- it billed DA customers for BOTH surcharges but then gave them a CREDIT that included both surcharges. PG&E, on the other hand, did NOT charge DA customers for the 3 cent surcharge nor include it in any credit -- in compliance with the CPUC March order.  However, PG&E continued to charge the 1 cent surcharge to DA customers in compliance with the CPUC's January order.

4.  AReM filed comments/protests on the utility advice letters -- in May, I believe.  AReM supported SCE's approach for not charging the 1 cent surcharge and for looking the closest to a "bottoms-up" calculation. AReM did mention that SCE should NOT be charging then crediting the surcharges, however.  AReM supported PG&E's approach of neither charging nor crediting the surcharge -- but opposed PG&E's continued charging of the 1 cent surcharge.  AReM agreed with SCE that, given the discussion in the March order and the application of the surcharges to generation-related costs going forward, the 1 cent surcharge should NOT apply to DA customers.

5.  When Advice Letters are protested, the Energy Division staff of the CPUC prepares a Resolution that recommends how to address the protested issues.  The Resolution is then presented to the CPUC at a meeting and voted on. Usually we have between one day and one week to see the Resolution before it is voted on. No Resolution has come forward on these Advice Letters.  The CPUC has no time requirement for when Advice Letters must be resolved.

6.  Discussions between AReM members and the Energy Division staff indicate that the staff agrees with AReM and will support AReM's request when it drafts the Resolution.

7.  Initiating a formal change to the January order on the 1 cent surcharge would require the filing of a Petition to Modify (usually done within a year -- but I believe can be requested at any time thereafter with a special motion).  This would begin a formal process -- also WITH NO TIME LINE.  It would also bring out the big guns opposing direct access -- the unions and TURN (a supposed small customer advocacy group) -- making quick response and a win for AReM more problematic.

8.  AReM has decided to work with the Energy Division staff and see if we can get a favorable Resolution kicked out by the end of September. (The Energy Division staff is overloaded right now with all the DWR-related decisions required for the 8/23 meeting.) If not, AReM will consider making a formal Petition to Modify.

9.  I recommend that Enron continue with its current strategy to work through AReM to achieve a favorable outcome on the 1 cent surcharge.

Sue Mara
(415) 782-7802