Affiliate "Relook" OIR

Dear Jeff and Sue,

As you are probably aware, the Commission voted out an OIR last week to open
"relook" at the affiliate rules adopted 3 years ago. Last year, under
Mona's direction, Enron filed comments and attended a workshop in which the
utilities attempted to eliminate most of the affiliate rules. At that time,
Enron was the only major proponent of the old rules remaining at the table.
Subsequent to the workshop, ARM submitted comments.

Now, many months later, the CPUC has released the OIR and has identified
specific rule changes that they will consider in the OIR. Many of the
changes are relatively innocuous, but several would undermine key provisions
of the original rules (e.g., name/logo, corporate support, employee sharing)

Procedurally, the CPUC will receive comments and/or prepared testimony on
March 1, 2001 on the issues identified in the OIR, followed by a PHC on
March 14, 2001. The OIR also projects hearings in June leading to a Final
Decision in October 2001.

The specific issues raised in the OIR include:

Rule 1 -- The Commission will look at steps to conform the definitions in
the affiliates rules with those contained in R.92-08-088 [Affiliate
Transaction Reporting Requirements].

Rule II -- The Commission will consider an expansion of the applicability
rules to include telecommunications affiliates.

Rule IV.C -- The Commission will consider omission of the service provider
list requirement contained in the original rules.

Rule IV.D -- The Commission seeks to clarify the supplier information rules
to avoid redundancies and/or conflicts with other rules.

Rule IV.F -- The Commission will consider changing record keeping
requirements for affiliate transactions.

Rule V.E. -- The Commission will consider clarifications of corporate
support "to reduce confusion regarding oversight, governance, support
systems, and personnel.

Rule V.F.1 -- The Commission will investigate whether the name/logo rule is
needed or should be strengthened.

Rule V.G2b -- The Commission will investigate whether the sharing of
employee rule needs to be relaxed.

Rule VI.B. -- The Commission will consider problems identified with the new
affiliate compliance plan.

Rule VI.C. -- The Commission will review whether yearly audits remain
necessary.

Rule VII -- The Commission will bifurcate this rule into another OIR.

Significantly, the Commission declines to make so-called "style" changes
proposed by the utilities. At the workshop, we were quite alarmed to see a
rewrite of all the rules under the guise of "stylistic changes." We opposed
that noting that the rules were the result of extensive negotiation and
compromise.

This, of course, leads to the question of whether Enron wants to participate
in this proceeding, and, if so, to what level. I will need to know, for
example, whether you will want me to prepare comments for March 1, 2001 or
to attend the PHC on March 14, 2001. We would also need to identify the
issues, if any, on which Enron would take an active position on in this
proceeding. From the earlier phase, Mona had highlighted concern over the
utilities sharing engineering services as a corporate support function.

If you have questions, please call me at 765-8409.

Jim McTarnaghan