On the various matters currently before the California PUC:
The Commission order stating that the utilities should absorb any difference
between DWR's cost of power and the retail rate freeze is still technically
in effect. (The order only applies, however, to the power purchased under
the Governor's emergency order giving the State the authority to buy power.)
The utilities have petitioned to modify the decision telling the Commission
that the easiest way to remedy the problem would be to vacate the order
altogether, but if the Commission didn't want to vacate the order, it would
need to change the decision so that the IOUs don't eat any shortfalls.
The Commission can act on the petition to modify whenever it chooses. In
addition, it has a continuation meeting scheduled for this Thursday and a
regularly scheduled business meeting next week. So the opportunity to act
and fix the Order is there if the Commission wants to take it.
With respect to the cost of utility generation (i.e., retained generating
assets and QF contracts), the Commission has a set up a schedule that
foresses a Commission decision adopting an "interim" procurement charge on
March 27th. There is another "workshop" scheduled for tomorrow to discuss
the utilities' proposals, after which the utilities will be required to file
formal "advice letters" with the Commission. Those advice letters will form
the basis of the process that the Commission will use to ultimately arrive at
a decision on the 27th.
Everyone participating in the workshops takes the view that customers will
see a separate line item on their bills to cover the going forward costs that
DWR incurs to buy power. Everyone participating in the workshops also takes
the view that customers will be on the hook for DWR's costs and the
Commission will, if necessary, raise rates to ensure that DWR is made whole.
(Unfortunately, the Commission is not currently sending signals to show that
it concurs with the folks participating in the workshops. And until there is
clarity on whether the Commission will agree to "pass through" those costs,
Enron and others will continue to have problems with DWR's credit as it
applies to the RFP that we and others responded to last week.)
Next week begins the hearings to address the issues that Commission started
to examine began in the emergency hearings held over the holidays, i.e., the
utilities financial position, TURN's proposal to "net out" the utilitities'
generation-related revenues with the undercollection caused by the rate cap,
the date on which the rate has (or will) end, etc. Recently, TURN modified
its testimony in response to the passage of AB1X. TURN's new position is
that the Commission should find that the rate freeze ended on February 1st,
the effective date of AB1X. EES will need to quickly determine how and if
it wants to respond to TURN's latest stance on the end of the rate freeze.
We continue to try to persuade stakeholders and the Commission that DA
customers must be compensated for the fact that they paid for the utilities'
stranded generating assets. That compensation could come in one of two
forms: 1) access to a proportionate share of the utilities' retained,
cost-based generating assets, or 2) a credit representing the difference
between the "market" value of the retained generating assets and the book
value of those assets. We are not getting much traction thus far.
The Commission is scheduled to issue a separate decision addressing the rate
freeze issue, the issue of whether to net out generating-related revenues
against the undercollection, etc. on March 27. So both sets of issues (the
procurement charges and the "end of the rate freeze) are scheduled to be
"finalized" on March 27, albeit in separate orders.
With respect to the Block Foward issue, our lawyers had a pretty good meeting
on Friday with the DWR general counsel and other DWR lawyers. However, it
has become clear that despite those efforts, FERC's decision on "charge
backs" will have a significant effect on the resolution of the Block Forward
issue.

Best,
Jeff