Sue is right, of course.  But....

Her argument turns in part on her assumption that going into the deal back in 1996, the utilities were agreeing to take on the risk of high wholesale prices.  Like most parties back then, they never contemplated a world where energy prices would exceed their capped average rate of $65 (+/-).  In other words, they assumed they would recoup most, if not all, of their stranded costs.  They may have even assumed (certainly they seem to be arguing for it now) that they DESERVED to recoup their stranded costs, and that AB 1890 was designed to guarantee it.

I do not know all of the details of the history, but y'all have spoken of a ruling (PUC? Court?) to address the specific issue of negative CTC, zero minimum bill, etc.  Obviously, this ruling was in our favor, which lends a lot of credibility to Sue's argument.  But the fact that the original dereg plan was so vague as to require a ruling on this issue ex post opens the door to a counterargument by the utilities, namely that at the time of AB 1890's passage, they were not explicitly agreeing to take on the risk of high wholesale prices -- they were instead forced to do so by later interpretations of the law.  If they had known then....

Please note that I do remember what side I am on. :)  I am not saying that this counterargument is correct.  Indeed, the negative CTC ruling is de facto evidence that they are wrong, even if they didn't know it going into the deal.  I only present all of this b/c I think it is the only halfway sensible argument they can make in the face of Sue's impeccable logic, and I think we ought to at least have given it some thought in case they try to bring it up.



> -----Original Message-----
> From: Mara, Susan 
> Sent: Wednesday, October 31, 2001 12:36 PM
> To: Dasovich, Jeff; Steffes, James D.; Mellencamp, Lisa; Tribolet,
> Michael; Huddleson, Diann; Swain, Steve; Curry, Wanda; 
> 'mday@gmssr.com'
> Subject: Sue's Retort to SCE's Premise
> Importance: High
> 
> 
> I don't agree Edison's premise -- that "direct access 
> customers contributed just as much to SCE's procurement costs 
> undercollection as bundled service customers." We need to 
> make clear that we don't buy in to their rhetoric.
> 
> Here's my reasoning.
> 
> DA Customers are completely different from bundled customers. 
> SCE had to buy power to serve the bundled load.  SCE did not 
> buy power for DA customers.  SCE's purchases of the power to 
> serve the bundled load coupled with high wholesale prices and 
> an inability to raise rates was the direct reason for the 
> undercollection. I can make the argument that the 
> undercollection is SOLELY related to BUNDLED SERVICE.
> 
> There are two big reasons that back me up: AB 1890 and 
> Top-down rates.  I will explain.  The utilities got what they 
> wanted out of AB 1890 -- payments of $30 plus billion in 
> so-called stranded costs and a real delay in any competitive 
> retail market until their costs were paid off.  One of the 
> tradeoffs, however, was that the utilities were at risk FOR 
> HIGH PRICES in the WHOLESALE MARKET.  Everyone understood 
> that if there were high gas prices or bad hydro years, the 
> utilities would be squeezed and not collect their billions by 
> the 3/31/01 deadline. That's the risk they agreed to.  Now, 
> they are claiming that they were ENTITLED to that money and 
> more.  This is in direct conflict with the statute. I can 
> make the argument that the statute requires SCE to assume 
> this risk and therefore any undercollection is theirs alone 
> -- now the CPUC can bail them out -- but that doesn't make 
> ESPs subject to any presumed "undercollection."
> 
> Now to the rates.  At the beginning of DA, the utilities did 
> not want to do a real rate case and separate the costs of the 
> wholesale business and the retail busness from T&D. So, they 
> did a "top-down" calculation.  This meant that there had to 
> be a "credit" put on the bills of DA customers to account for 
> the costs the utility avoided by having the customers switch 
> to DA. So, the PX Credit structure was a direct result of the 
> utilities unwillingness to unbundle specific components of 
> the rates.  Next, although bundled customers rates were 
> capped, the decisions from the CPUC made it clear that there 
> was no similar cap for DA customers -- their rates and bills 
> would be whatever was charged by their ESPs.  However, when 
> the utilities filed their tariffs with the CPUC, they added a 
> cap for the PX credit that was neither proposed nor 
> authorized by the Commission.  Enron attacked it, but got 
> nowhere, until WPTF and Enron brought it up in the 1998 RAP 
> Proceeding. Our argument was that the bundled rates were 
> capped but not the bills of DA customers -- and the credit 
> was supposed to represent the full costs the utilities 
> avoided by not serving DA customers.  We argued that anything 
> less is fundamentally unfair and anticomeptitive.  The 
> utilities must have thought we had a good case, because they 
> agreed to settle. The settlement was accepted by the 
> Commission in the proceeding. Everyone understood that 
> eliminating the cap on the PX Credit was primarily to allow 
> the PX Credit to FLOAT ABOVE THE CAP when wholesale prices 
> were high. So, we have a legal right to receive the full PX 
> Credit/Negative CTC which is separate and distinct from any 
> undercollection associated with bundled customers. It seems 
> as if we should be able to prosecute this legal right. 
> (keeping in mind I am not an attorney) 
> 
> In summary, we have leverage and should use it.
> 
> Sue
> 
> 
> -----Original Message-----
> From: Dasovich, Jeff 
> Sent: Wednesday, October 31, 2001 11:12 AM
> To: Mara, Susan; Steffes, James D.; Mellencamp, Lisa; 
> Tribolet, Michael;
> Huddleson, Diann; Swain, Steve; Curry, Wanda; 'mday@gmssr.com'
> Subject: Proposal Edison Is Distributing to ESPs
> 
> 
> FYI.
> 
> -----Original Message-----
> From: Matt.Pagano@sce.com [mailto:Matt.Pagano@sce.com]
> Sent: Wednesday, October 31, 2001 1:05 PM
> To: Dasovich, Jeff
> Subject: DA Credit 
> 
> 
> Hi Jeff,
> 
> Please find below SCE's proposal to settle past Direct Access 
> Credit issues
> and determine the Direct Access Credit going forward. Please 
> forward this
> to any other Enron participants to review prior to our 
> conference call with
> John Fielder, November 1, 2001, 11:00 a.m. PST.
> 
> (See attached file: DA Proposal.doc)
> 
> Thanks.
> 
> Matt Pagano
> Account Manager
> ESP Services Division
> tel-714-895-0222
> fax-714-895-0347
> Email-Paganomj@SCE.Com
> 
>
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