Message-ID: <1700374.1075844269387.JavaMail.evans@thyme> Date: Mon, 9 Apr 2001 12:42:00 -0700 (PDT) From: james.steffes@enron.com To: steven.kean@enron.com, richard.shapiro@enron.com, mark.palmer@enron.com, karen.denne@enron.com, paul.kaufman@enron.com, susan.mara@enron.com, jeff.dasovich@enron.com, sandra.mccubbin@enron.com, harry.kingerski@enron.com Subject: Enron Proposed Response - Summary of the SCE Deal Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: James D Steffes X-To: Steven J Kean, Richard Shapiro, Mark Palmer, Karen Denne, Paul Kaufman, Susan J Mara, Jeff Dasovich, Sandra McCubbin, Harry Kingerski X-cc: X-bcc: X-Folder: \Richard_Shapiro_June2001\Notes Folders\Sce deal X-Origin: SHAPIRO-R X-FileName: rshapiro.nsf Here are some thoughts on what our message may be.=20 Unclear how this is going to increase supply, decrease demand, and increase= =20 customer choice. Still doesn't make sense to us to have the state buy a=20 crumbling transmission network instead of school lunches. We don't have enough details. There are several aspects that are interesti= ng=20 and could use further study. Governor Davis needs to make the details publ= ic=20 as soon as possible so people can understand the full implications. For=20 instance, what happens to DWR contracts? Will they be assigned to SCE? Wi= ll=20 customers have the right to choose going forward? The recent events highlight the critical need to make sure that customers c= an=20 make their own energy decisions going forward. We know that Government=20 doesn't know how to get this right. The right answer is giving customers= =20 more choices, not fewer. Can't endorse it until we know if our bills are going to be paid in full. = If=20 the bills aren't paid in full, highly likely that we'll see involuntary=20 bankruptcy. Too bad that this deal wasn't done earlier. It could have saved alot of=20 money and pain. Why do you need to include the transmission purchase in this deal? May nev= er=20 happen. Make it easy - just deal with the under collection through=20 securitization and throught the EIX refund to SCE and get on with it. =20 Jim ---------------------- Forwarded by James D Steffes/NA/Enron on 04/09/2001= =20 07:24 PM --------------------------- From: Jeff Dasovich on 04/09/2001 07:00 PM Sent by: Jeff Dasovich To: Alan Comnes/PDX/ECT@ECT, Angela Schwarz/HOU/EES@EES, Beverly=20 Aden/HOU/EES@EES, Bill Votaw/HOU/EES@EES, Brenda Barreda/HOU/EES@EES, Carol= =20 Moffett/HOU/EES@EES, Cathy Corbin/HOU/EES@EES, Chris H Foster/HOU/ECT@ECT,= =20 Christina Liscano/HOU/EES@EES, Craig H Sutter/HOU/EES@EES, Dan=20 Leff/HOU/EES@EES, Debora Whitehead/HOU/EES@EES, Dennis Benevides/HOU/EES@EE= S,=20 Don Black/HOU/EES@EES, Dorothy Youngblood/HOU/ECT@ECT, Douglas=20 Huth/HOU/EES@EES, Edward Sacks/Corp/Enron@ENRON, Eric Melvin/HOU/EES@EES,= =20 Erika Dupre/HOU/EES@EES, Evan Hughes/HOU/EES@EES, Fran Deltoro/HOU/EES@EES,= =20 Gayle W Muench/HOU/EES@EES, Ginger Dernehl/NA/Enron@ENRON, Gordon=20 Savage/HOU/EES@EES, Harold G Buchanan/HOU/EES@EES, Harry=20 Kingerski/NA/Enron@ENRON, Iris Waser/HOU/EES@EES, James D=20 Steffes/NA/Enron@ENRON, James W Lewis/HOU/EES@EES, James Wright/Western=20 Region/The Bentley Company@Exchange, Jeff Messina/HOU/EES@EES, Jeremy=20 Blachman/HOU/EES@EES, Jess Hewitt/HOU/EES@EES, Joe Hartsoe/Corp/Enron@ENRON= ,=20 Karen Denne/Corp/Enron@ENRON, Kathy Bass/HOU/EES@EES, Kathy=20 Dodgen/HOU/EES@EES, Ken Gustafson/HOU/EES@EES, Kevin Hughes/HOU/EES@EES,=20 Leasa Lopez/HOU/EES@EES, Leticia Botello/HOU/EES@EES, Mark S=20 Muller/HOU/EES@EES, Marsha Suggs/HOU/EES@EES, Marty Sunde/HOU/EES@EES,=20 Meredith M Eggleston/HOU/EES@EES, Michael Etringer/HOU/ECT@ECT, Michael=20 Mann/HOU/EES@EES, Michelle D Cisneros/HOU/ECT@ECT, mpalmer@enron.com, Neil= =20 Bresnan/HOU/EES@EES, Neil Hong/HOU/EES@EES, Paul Kaufman/PDX/ECT@ECT, Paula= =20 Warren/HOU/EES@EES, Richard L Zdunkewicz/HOU/EES@EES, Richard=20 Leibert/HOU/EES@EES, Richard Shapiro/NA/Enron@ENRON, Rita=20 Hennessy/NA/Enron@ENRON, Roger Yang/SFO/EES@EES, Rosalinda=20 Tijerina/HOU/EES@EES, Sandra McCubbin/NA/Enron@ENRON, Sarah=20 Novosel/Corp/Enron@ENRON, Scott Gahn/HOU/EES@EES, Scott Stoness/HOU/EES@EES= ,=20 Sharon Dick/HOU/EES@EES, skean@enron.com, Tanya Leslie/HOU/EES@EES, Tasha= =20 Lair/HOU/EES@EES, Ted Murphy/HOU/ECT@ECT, Terri Greenlee/NA/Enron@ENRON, Ti= m=20 Belden/HOU/ECT@ECT, Tony Spruiell/HOU/EES@EES, Vicki Sharp/HOU/EES@EES,=20 Vladimir Gorny/HOU/ECT@ECT, Wanda Curry/HOU/EES@EES, William S=20 Bradford/HOU/ECT@ECT, Kathryn Corbally/Corp/Enron@ENRON, Jubran=20 Whalan/HOU/EES@EES, triley@enron.com, Richard B Sanders/HOU/ECT@ECT, Robert= C=20 Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Greg Wolfe/HOU/ECT@ECT, James= =20 Wright/Western Region/The Bentley Company@Exchange, Dirk vanUlden/Western= =20 Region/The Bentley Company@Exchange, Steve Walker/SFO/EES@EES, Jennifer=20 Rudolph/HOU/EES@EES, Martin Wenzel/SFO/HOU/EES@EES, Douglas=20 Condon/SFO/EES@EES, wgang@enron.com, Scott Govenar ,= =20 Hedy Govenar @ ENRON, jklauber@llgm.com, Mike D=20 Smith/HOU/EES@EES, John Neslage/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Janel= =20 Guerrero/Corp/Enron@Enron, Eric Letke/DUB/EES@EES, Richard B=20 Sanders/HOU/ECT@ECT, gfergus@brobeck.com, Michael Tribolet/ENRON@enronXgate= ,=20 Robert Frank/NA/Enron@Enron, Richard B Sanders/HOU/ECT@ECT,=20 gfergus@brobeck.com, Susan J Mara/NA/Enron@ENRON, Mercy Gil/Enron@EnronXGat= e,=20 Jennifer Thome/NA/Enron@Enron, David Leboe/HOU/ECT@ECT cc: =20 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).