Gov Aff Outcome

FYI. Thought this analysis was interesting - EES would do pretty well under
our current recommendations if we can get the past Negative PX credit paid
for.

Jim

----- Forwarded by James D Steffes/NA/Enron on 01/15/2001 08:04 AM -----

Scott Stoness@EES
01/14/2001 11:43 AM

To: Roger Yang/SFO/EES@EES
cc: Harry Kingerski/NA/Enron@Enron, James D Steffes/NA/Enron@Enron
Subject: Gov Aff Outcome

Roger, I put this together to consolidate my thinking on the gov aff proposal

What I told Gov Aff. is that we are okay with their proposal if they get a
committment that we should be able to buy at the same costs as the utility,
including the low costs of the existing assets.

Math is
10% increase in 2001 causes $70m loss
10% increase in 2002 causes $40m loss
Unwinde 2002 hedge causes $145 gain
Net is 35m gain for 1st 2 years

Presumably beyond 2002 we are still subject to the 10% increase for 5 years
10% increase for another 4 years = $33m loss
However a $10/MWh gain in 2003/2004 hedge would cause a $24m gain by itself
Net would be close to a wash or ahead for 2003 and beyond

So overall the proposal is okay with the following risks:
It does not address our outstanding $250m debt from negative ctc to pg&e but
according to gov aff my alt proposal is way to complicated. We cannot
retroactively buy from PG&E. So we will have to argue that PG&E owes us this
money in the CPUC.
Our large customers, if not on the hook for the expected ctc that results
from this proposal, could say that they refuse to let us take advantage of
the lower costs prices because it comes with a recovery ctc period. We have
to hope that all customers are required to participate in the ctc regardless
of who serves them.