Summary of the MOU

---------------------- Forwarded by Steven J Kean/NA/Enron on 04/10/2001=20
07:35 AM ---------------------------
From: Jeff Dasovich on 04/09/2001 07:00 PM
Sent by: Jeff Dasovich
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Subject: Summary of the MOU

The following is an outline of the basic terms of the Southern California=
=20
Edison Memorandum of Understanding:

? Commitment to Provide Power =01) SCE will keep its current generation pla=
nts=20
and other generation assets and commit them to provide power on a regulated=
=20
cost-of-service basis for 10 years.
? Dedication of Power =01) Edison International will commit the entire outp=
ut of=20
Sunrise (one of Edison International=01,s non-regulated generating faciliti=
es)=20
to the State on a fixed price basis for 10 years. Phase I of Sunrise is to =
be=20
brought online by August 15, 2001. If not brought online by August 15, 2001=
,=20
Edison International shall be assessed a $2 million penalty.
? Transmission Sale =01) SCE will sell to the State its transmission assets=
for=20
approximately $2.76 billion (2.3 times the net book value of the assets),=
=20
subject to certain adjustments. Of the $2.76 billion, the $1.5 billion gain=
=20
on sale, will be used to reduce SCE=01,s net undercollected amount as of Ja=
nuary=20
31, 2001. In connection with the purchase, the State will also assume certa=
in=20
liabilities associated with the transmission assets.
? Backup Transaction =01) If the transmission sale does not occur within tw=
o=20
years for reasons beyond the parties=01, control, then if the State elects,=
SCE=20
shall sell to the State SCE=01,s hydro generation assets. If the hydro asse=
ts=20
are not worth $1.5 billion, then SCE will also sell the state after Decembe=
r=20
31, 2010 enough below-market-price-power to make up the shortfall.
? Conservation Property =01) SCE shall grant perpetual conservation easemen=
ts to=20
the State covering approximately 260,000 acres of its Big Creek hydroelectr=
ic=20
related lands and 825 acres of its Eastern Sierra hydroelectric related=20
lands. Some of the land may be deeded in fee.
? Contribution by Edison International =01) Edison International will refun=
d to=20
SCE not less than $400 million. This money will consist of a refund of=20
approximately $293 million in estimated 2000 quarterly tax payments plus=20
approximately $197 million in federal loss carryback tax savings.
? Investment =01) Edison International and SCE will invest not less than $3=
=20
billion over the next 5 years in capital improvements for SCE.
? Litigation =01) SCE shall dismiss certain claims, including its takings a=
nd=20
filed rate doctrine cases.
? CPUC Regulation =01) CPUC shall continue to regulate SCE using historical=
=20
principles of ratemaking.
? Payment for Portion of QF Drop-off =01) SCE shall pay an amount that=20
represents that portion of the net short from January 18, 2001 to April 1,=
=20
2001 that is attributable to QF=01,s not selling to SCE (due to SCE=01,s fa=
ilure to=20
pay the QF=01,s). SCE will securitize this amount.
? Securitization =01) SCE shall securitize its full net undercollected amou=
nt=20
(approx. $3.5 billion). The securitization shall occur in two tranches (i.=
e.=20
two different nonbypassable dedicated rate components).

? The first tranche will occur after the passage of legislation and the=20
signing of the definitive agreements and will cover the net undercollected=
=20
amount, less the gain on sale, plus interest on certain obligations in the=
=20
net undercollected amount.
? The second tranche would be triggered if the transmission sale does not=
=20
occur within two years. Accordingly, the second tranche would not show up =
in=20
rates for two years, if at all.

? Buying the Net Short =01) The State will be required to buy the net short=
=20
through December 31, 2002. After 2002 SCE will be responsible for covering=
=20
the net short.
? Investment Recovery =01) SCE shall have an authorized rate of return that=
will=20
not drop below its current rte (11.6%) during the 10 year cost of service=
=20
ratemaking period.
? Next Steps (Definitive Agreements and CPUC Action):

? Definitive Agreements =01) Once the MOU is signed, the next stage is to=
=20
negotiate definitive agreements which contain the specific terms of the=20
transmission sale, as well as the specific terms of the various other relat=
ed=20
agreements (e.g., the O&M Agreement, Transmission Services Agreement and th=
e=20
Facilities Services Agreement).
? CPUC Action =01) Prior to entering into the definitive agreements, the CP=
UC=20
must undertake certain actions (which include: establishing mechanisms for=
=20
preapproval of procurement costs and URG costs, deferring SCE=01,s general =
rate=20
case until 2003, granting SCE some relief from direct access credits and=20
clarifying the first priority condition in the holding company act).