Solve IOU Undercollection with a Mere 10% Average Rate Increase?

Greetings:

Please review the attached. It's a summary I've put together of a very=20
lengthy analysis MRW did for us over the weekend. I've also attached the=
=20
considerably lengthier MRW memo for those who'd like to see it. The tables=
=20
included in the summary are pulled directly from the MRW memo. The analysi=
s=20
only addresses the utilities undercollection (i.e., solvency) and doesn't=
=20
address any additional increases that might result from DWR's buying=20
activities.

The Bottom Line
=06=15 By raising average rates 10% over a 10-year period, California could=
1)=20
return the utilities to solvency, and 2) help close the supply-demand gap =
by=20
providing customers with better price signals.
=06=15 California could achieve these goals under this new rate structure a=
nd at=20
the same time exclude one-third of residential customers from any increase=
s.=20
If California chose not to exclude any customers from the new rate structur=
e,=20
California would only need to raise average rates by about 8.8%.
=06=15 This level of increase is in line with increases enacted in other st=
ates=20
(e.g., Washington: 28-34%; Montana: 4.5-32%; Idaho: 6.0-24%; Nevada:=20
7-12.5%; New Mexico 12%).

We'll need to look at it critically and try to shoot holes in it before goi=
ng=20
public with the numbers as part of our broader effort, but it offers a=20
reasonable benchmark against which to judge alternatives (like spending the=
=20
kids lunch money on crumbling, broken down transmission systems).

Please provide feedback as soon as possible, and perhaps, Paul we conclude=
=20
the MRW work on the agenda for discussion on tomorrow's daily conference ca=
ll.

Best,
Jeff

- Undercollection assessment final.doc