PG&E Proposed Solution

Roger:
We're still ruminating on this within Government Affairs and will continue to
ruminate over the next few days, but wanted to fill you in on where we
currently are and get your comments. Thanks.

Jeff
----- Forwarded by Jeff Dasovich/NA/Enron on 09/29/2000 12:11 PM -----

Jeff Dasovich
Sent by: Jeff Dasovich
09/28/2000 01:49 PM

To: Harry Kingerski/NA/Enron@Enron, James D Steffes/NA/Enron@Enron, Paul
Kaufman/PDX/ECT@ECT, Sandra McCubbin/SFO/EES@EES, Susan J Mara/SFO/EES@EES,
Mona L Petrochko/SFO/EES@EES
cc:
Subject: PG&E Proposed Solution

Harry:

At the meeting yesterday, we concluded that it would be a good idea to take
the proposal that you put together based on your meeting with EES and use it
as the "base case" to start running the numbers. Idea being that before we
shop anything around, we need to know what the numbers look like to determine
whether the thing's got any legs.

Once we have a clear understanding of how the base case numbers shake out,
we thought we might then want do some sensitivity analyses around the
variables, come up with a final proposal, and then go back to the commercial
groups for buy-in. We hoped that your folks could get together with Roger
Yang et al and provide some assessment of what the base case numbers look
like by middle of next week. How's this plan sound? Few other points:

We assume that bullet 6's reference to "net" means that the deferral is
calculated by taking any "overcollections" and subtracting them from any
"undercollections" over the entire 3 year period,not year-by-year.
What is the significance of the 3.1 CTC roll-off date? We're assuming it's
commercially driven. We correct? If so, what's the driver? Same goes for
the 2004 ending date.
Some tweeks were made to the proposal at the meeting to create an "Option 2"
for folks to consider. (Though we don't think that any numbers need to be
run on "Option 2" until after having completed the analysis on option 1,
since those results could influence any scenarios we decide to construct).
Option 2 would:
Keep the hydro with the utility and apply Edison's proposed ratemaking
treatment.
Beginning 6.1.01, make large customers "noncore," similar to the gas model in
California, and force those customers to choose an ESP.
Beginning 1.1.03, introduce competitive default service for remaining "core"
(i.e., rez and small commercial) customers.

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Finally, couple of things that occurred to me after yesterday's meeting that
I want to throw out for folks to react to:

Seems that, to be successful, the proposal needs to remain as stripped down
and simple as possible.
When the proposal nets out the deferral costs, does it include the
over/undercollections associated with utility residual generation?
In option 2, by adding the "noncore" feature, and by implementing that
feature and the default service feature prior to the 04 ending date, the
proposal gets more complicated (and adds significantly more risk to the
utility's position). This is not to say that the complications can't be
worked out, or that the added risk can't be accounted for, but wanted to
highlight it for folks to consider.

Attached is the original, with just a couple of minor edits, and "Option 2."

Best,
Jeff