West Virginia Settlement

---------------------- Forwarded by Steven J Kean/HOU/EES on 12/13/99 05:15
PM ---------------------------

Janine Migden
12/13/99 03:57 PM
To: Steven J Kean/HOU/EES@EES, Richard Shapiro/HOU/EES@EES, James D
Steffes/HOU/EES@EES, Harry Kingerski/HOU/EES@EES, Scott Stoness/HOU/EES@EES,
Elizabeth Linnell/HOU/EES@EES, Ginger Dernehl/HOU/EES@EES, Lynnette
Barnes/HOU/EES@EES, Susan.R.Lewis@enron.com
cc: Thomas S Reichelderfer/DUB/EES@EES, Barbara A Hueter/DUB/EES@EES, Lara
Leibman/HOU/EES@EES
Subject: West Virginia Settlement

Thom and I have just completed negotiations in West Virginia involving APS,
AEP and other stakeholders.
The settlement, being filed today is a compromise on all the issues and is
the result of negotiations. Enron was the only marketer involved in the
process. While we weighed in all the issues, there are a number of items
that but for our persistence would not have been included in the final
agreement. These items include the following:

1. Native load language
2. Competitive metering and billing for industrial and large commercials as
of day one, with other customers following no later than within the next four
years.
3. Addition of competitive bidding for default service at end of 5 years.
4. Change from functional separation to a requirement to corporately
separate as soon as possible but no later than within the next five years.
5. Strong codes of conduct that form the base for more detailed rulemaking.
(A special thanks to Lara Leibman for her assistance).

Below is a summary of the entire settlement:

1. All customers can exercise choice beginning January 1, 2001.
2. All utilities including IOU's, munies and coops can opt in. APS has
committed to opt in whereas AEP is not because it did not get any stranded
cost and it also did not get a guarantee of full recovery of all costs
resulting from the environmental lawsuits against them irrespective of their
financial condition.
3. Competitive metering and billing as described above.
4. Generation is deregulated.
5. PSC continues jurisdiction over implemention, rate unbundling,
reliability, codes of conduct, supplier licensing, construction of
transmission lines and eminent domain authority.
6. Native load language - Requires utilities to provide service to
affiliated and unaffiliated suppliers only under the applicable distribution
tariffs and proformatransmission tariffs.
7. RTO's - Each utility must join a FERC approved RTO or its equivlent by no
later than 1/1/03; best efforts requirement to eliminate pancaking by 1/1/05
if IOU's are in separate RTO's.
8. Competitive bidding process for default service customers at end of year
5 for remainder of transition period.
9. Rate unbundling requirement
10. Rates capped for first 4 years with any FERC change in transmission being
applied as an offset to distribution.
Rates continue to be regulated through the 10th year with the rate gradually
increasing during the second six years for the residential and small
commercial customers. For the large commercial and industrial customers, the
rate regulation ends 12/31/07.
11. A rate stabilization deferral fund is created to facilitate the
transition to competition in years 11, 12 and 13, under which APS must
contribute $56.75 million and AEP must contribute $81 million to be used as
an offset to the prices paid by small residential and commercial default
customers.
12. Large commercial and industrial customers receive for the first 4 years,
rate decreases in an amount to be determined by the Commission for AEP
customers and 3% for APS customers. The rate decrease is allocated to
distribution.
13. No stranded costs (either generating or regulatory assets) for AEP or
APS, however APS gets a ten year PURPA surcharge starting at 2.6 mills per
kwh in year one and declining to .75 mills per kwh in the last two years.
14. Usual licensing requirements. (AEP fought for the right to have a
second tier of licensing where they would have the ability to certify
marketers but we defeated that).
15. Corporate separation and codes of conduct as described above.
16. Consumer protection and education requirements typically found in other
plans.
17. Low income protection provisions providing a .2 mil surcharge with the
minimum being $.40 and the maximum being $300.
18. Utility worker protection plan.

Below for your information is the plan.

At this point the plan goes to the PSC for approval and then on to the
legislature for a resoulution approving the PSC order. We expect that AEP
and labor will oppose it, so it will be a close call.

Janine