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FYI
-----Original Message----- From: Stevens, Kirk Sent: Wednesday, September 19, 2001 11:46 AM To: Mayeux, Gay Cc: Hayslett, Rod Subject: RE: PGE Power Costs Gay, here's the story and some numbers for the Q3 comparison. Please remember the context of our phone conversion this morning when looking at this. Hopefully this helps Investor Relations put the story together for the Earnings Release. Power Cost Adjustment We now expect to have an amount collectable from customers to record all Q3 of $86m. Since we we're basically at the deadband level at the end of Q2, we end up eating our way through the deadband and up into the 90% collection band all in Q3. On a stand alone basis, we will incur about $54m of net variable power costs Q3 that we won't have any revenues for (but remember to keep this in context for the entire 9-month period). The following shows how this is calculated: Projected Net Variable Power Costs = $316m Baseline for PCA = $176m Difference Subject to PCA Collection = $140 Deadband = $35m (no collection) 50/50 band = $21m (collect $10.5m, no collection = $10.5) 90/10 band = $84m (collect $75.5m, no collection = $8.5) The bands above = $140m ($35+21+84) Collections = $86m ($10.5+75.5) No Collection (PGE eats) = $54m ($35+10.5+8.5) Again, without the PCA mechanism and no other price increase between 1/1/01 and 9/30/01, PGE would be $90m worse off. As we discussed, before pulling our request for a rate increase to be effective 1/1/01 (which was replaced with the PCA mechanism), the latest amount being offered up by our PUC would have been around a $90m increase for the 9-month period (although the evidence was quickly moving towards no need for an increase, so we probably wouldn't have got the rate increase, and without a PCA, would have been worse off today). Quarter to Quarter Comparison - Margins As we discussed, things were looking really good for us through Q2 2001, but price caps and other factors in late Q2/early Q3 really dropped the price we could sell our excess power for, and accordingly has dropped our margins. In addition, a slowing economy and customer energy efficiency measures have resulted in significant reductions in our retail revenues compared to last year. Another point on the this year/last year quarter to quarter comparisons is that we went into Q3 2000 with length purchased at fairly low/reasonable costs over the prior year or so. In Q3 2000, wholesale sales prices increased dramatically (California market) so we made tremendous margins (above normal). Going into Q3 2001, much of the power we purchased was at higher prices than the previous year because of the higher wholesale power market operating over the past year. When price caps and other events dropped the bottom out of the wholesale power prices, our margins on our power lenght dropped dramatically. The PCA only picks up a power of this increase in net variable power costs, as outlined above. Also remember that we have a regulatory obligation to serve our customers, so we have to go into a month with length in order to ensure we can handle any potential load spikes or unplanned plant outages. Any excess power is sold in the wholesale market in the day-ahead or real-time markets. Big story, price caps and lower retail revenues have really hurt us year to year, but our new rate case effective 10/1/01 should get us back on track. Gross Margin Comparisons Based on our latest forecast, here's a breakdown of our gross margins on a year to year comparison for Q3. This gives you a high level look at the impact the above events have had on our margins year to year ($94m decrease in gross margin). Q3 2000 Q3 2001 Retail Revenues $257m $250m Wholesale Revenues 466m 571m Other Revenues 5m 5m Variable Power Costs 523m 715m Gross Margin $205m $111m Let me know if you have questions <<< "Mayeux, Gay" <Gay_Mayeux@ENRON.net< 09/19/01 05:43AM <<< I will try again. Mine shows an attachment. Look at the very bottom of the email. Thanks! _________________________ Gay Mayeux Vice President, Investor Relations Enron Corp. 1400 Smith Street, EB 4931a Houston, Texas 77002 Phone: 713-853-9905 Cell: 713-416-8821 Fax: 713-646-3002 email: gay.mayeux@enron.com -----Original Message----- From: Kirk Stevens [mailto:Kirk_Stevens@pgn.com] Sent: Tuesday, September 18, 2001 6:45 PM To: Mayeux, Gay Subject: Re: PGE Power Costs Gay, there wasn't an attachment <<< "Mayeux, Gay" <Gay_Mayeux@ENRON.net< 09/18/01 03:24PM <<< Attached is my attempt to summarize the PGE power cost issue. Please call me to discuss. I have no pride of authorship - just want to make sure it is simple as possible while still being correct. I will be here until about 6:30 my time. Thanks! _________________________ Gay Mayeux Vice President, Investor Relations Enron Corp. 1400 Smith Street, EB 4931a Houston, Texas 77002 Phone: 713-853-9905 Cell: 713-416-8821 Fax: 713-646-3002 email: gay.mayeux@enron.com ********************************************************************** This e-mail is the property of Enron Corp. and/or its relevant affiliate and may contain confidential and privileged material for the sole use of the intended recipient (s). Any review, use, distribution or disclosure by others is strictly prohibited. If you are not the intended recipient (or authorized to receive for the recipient), please contact the sender or reply to Enron Corp. at enron.messaging.administration@enron.com and delete all copies of the message. This e-mail (and any attachments hereto) are not intended to be an offer (or an acceptance) and do not create or evidence a binding and enforceable contract between Enron Corp. (or any of its affiliates) and the intended recipient or any other party, and may not be relied on by anyone as the basis of a contract by estoppel or otherwise. Thank you. **********************************************************************
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