Message-ID: <16772849.1075840019517.JavaMail.evans@thyme>
Date: Thu, 12 Jul 2001 19:26:33 -0700 (PDT)
From: ray.alvarez@enron.com
To: james.steffes@enron.com, t..hodge@enron.com, c..williams@enron.com, 
	steven.kean@enron.com, richard.shapiro@enron.com, 
	linda.robertson@enron.com, jeff.dasovich@enron.com, 
	steve.walton@enron.com, susan.mara@enron.com, alan.comnes@enron.com, 
	leslie.lawner@enron.com, w..cantrell@enron.com, 
	donna.fulton@enron.com, christi.nicolay@enron.com, 
	linda.noske@enron.com, dave.perrino@enron.com, don.black@enron.com, 
	robert.frank@enron.com, stephanie.miller@enron.com, 
	barry.tycholiz@enron.com, jennifer.thome@enron.com, 
	tim.belden@enron.com, mike.swerzbin@enron.com, m..driscoll@enron.com, 
	matt.motley@enron.com, robert.badeer@enron.com, 
	diana.scholtes@enron.com, sean.crandall@enron.com, 
	chris.mallory@enron.com, jeff.richter@enron.com, 
	tom.alonso@enron.com, mark.fischer@enron.com, 
	phillip.platter@enron.com, f..carla@enron.com, 
	michael.etringer@enron.com, c..hall@enron.com, 
	christian.yoder@enron.com, tim.heizenrader@enron.com, 
	steve.swain@enron.com, elliot.mainzer@enron.com, 
	bill.williams@enron.com, jake.thomas@enron.com, 
	lester.rawson@enron.com, greg.wolfe@enron.com, 
	paul.kaufman@enron.com
Subject: Summary- Judge's Recommendation re Retroactive Refunds
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X-From: Alvarez, Ray </O=ENRON/OU=NA/CN=RECIPIENTS/CN=NOTESADDR/CN=EBE4476B-2D94882A-86256A14-75FF3B>
X-To: Steffes, James </O=ENRON/OU=NA/CN=RECIPIENTS/CN=NOTESADDR/CN=AFB3D0FA-CCB03D20-86256962-56FDA5>, Hodge, Jeffrey T. </O=ENRON/OU=NA/CN=RECIPIENTS/CN=JHODGE>, Williams, Robert C. </O=ENRON/OU=NA/CN=RECIPIENTS/CN=RWILLIA2>, Kean, Steven </O=ENRON/OU=NA/CN=RECIPIENTS/CN=NOTESADDR/CN=B86DC838-ECAFDC13-8625693C-57FA6D>, Shapiro, Richard </O=ENRON/OU=NA/CN=RECIPIENTS/CN=NOTESADDR/CN=6CEDF0C-82C4A03C-8625696C-7693A4>, Robertson, Linda </O=ENRON/OU=NA/CN=RECIPIENTS/CN=NOTESADDR/CN=E6F34021-58C07703-86256984-56518C>, Dasovich, Jeff </O=ENRON/OU=NA/CN=RECIPIENTS/CN=NOTESADDR/CN=DA220740-3E85E661-86256962-4F9C13>, Walton, Steve </O=ENRON/OU=NA/CN=RECIPIENTS/CN=NOTESADDR/CN=B307C856-48FAA49D-86256721-510ADA>, Mara, Susan </O=ENRON/OU=NA/CN=RECIPIENTS/CN=NOTESADDR/CN=8A20ECE9-992CF340-8625697D-7146E9>, Comnes, Alan </O=ENRON/OU=NA/CN=RECIPIENTS/CN=ACOMNES>, Lawner, Leslie </O=ENRON/OU=NA/CN=RECIPIENTS/CN=LLAWNER>, Cantrell, Rebecca W. </O=ENRON/OU=NA/CN=RECIPIENTS/CN=BCANTRE>, Fulton, Donna </O=ENRON/OU=NA/CN=RECIPIENTS/CN=NOTESADDR/CN=CDE8DAE-A0B9AB37-862566B7-7A1609>, Nicolay, Christi </O=ENRON/OU=NA/CN=RECIPIENTS/CN=NOTESADDR/CN=5836B2AD-ED2E830F-86256502-7152CC>, jalexander@gibbs-bruns.com, Allen, Phillip K. </O=ENRON/OU=NA/CN=RECIPIENTS/CN=PALLEN>, Noske, Linda </O=ENRON/OU=NA/CN=RECIPIENTS/CN=NOTESADDR/CN=59F681AF-DD8A7D13-862564AD-623914>, Perrino, Dave </O=ENRON/OU=NA/CN=RECIPIENTS/CN=NOTESADDR/CN=13E30736-7885E1B0-86256A31-56095B>, Black, Don </O=ENRON/OU=NA/CN=RECIPIENTS/CN=NOTESADDR/CN=3FB677C9-5533A11E-8625699D-71B01E>, Frank, Robert </O=ENRON/OU=NA/CN=RECIPIENTS/CN=RFRANK>, Miller, Stephanie </O=ENRON/OU=NA/CN=RECIPIENTS/CN=SMILLER2>, Tycholiz, Barry </O=ENRON/OU=NA/CN=RECIPIENTS/CN=BTYCHOL>, Thome, Jennifer </O=ENRON/OU=NA/CN=RECIPIENTS/CN=JTHOME>, Belden, Tim </O=ENRON/OU=NA/CN=RECIPIENTS/CN=TBELDEN>, Swerzbin, Mike </O=ENRON/OU=NA/CN=RECIPIENTS/CN=MSWERZB>, Driscoll, Michael M. </O=ENRON/OU=NA/CN=RECIPIENTS/CN=MDRISC3>, Motley, Matt </O=ENRON/OU=NA/CN=RECIPIENTS/CN=MMOTLEY>, Badeer, Robert </O=ENRON/OU=NA/CN=RECIPIENTS/CN=RBADEER>, Scholtes, Diana </O=ENRON/OU=NA/CN=RECIPIENTS/CN=DSCHOLT>, Crandall, Sean </O=ENRON/OU=NA/CN=RECIPIENTS/CN=SCRANDA>, Mallory, Chris </O=ENRON/OU=NA/CN=RECIPIENTS/CN=CMALLOR>, Richter, Jeff </O=ENRON/OU=NA/CN=RECIPIENTS/CN=JRICHTE>, Alonso, Tom </O=ENRON/OU=NA/CN=RECIPIENTS/CN=TALONSO>, Fischer, Mark </O=ENRON/OU=NA/CN=RECIPIENTS/CN=MFISCHE2>, Platter, Phillip </O=ENRON/OU=NA/CN=RECIPIENTS/CN=PPLATTE>, Carla Hoffman/PDX/ECT@ECT, Calger, Christopher F. </O=ENRON/OU=NA/CN=RECIPIENTS/CN=CCALGER>, Etringer, Michael </O=ENRON/OU=NA/CN=RECIPIENTS/CN=METRING>, Hall, Steve C. </O=ENRON/OU=NA/CN=RECIPIENTS/CN=SHALL4>, Yoder, Christian </O=ENRON/OU=NA/CN=RECIPIENTS/CN=CYODER>, Heizenrader, Tim </O=ENRON/OU=NA/CN=RECIPIENTS/CN=THEIZEN>, Swain, Steve </O=ENRON/OU=NA/CN=RECIPIENTS/CN=SSWAIN>, Mainzer, Elliot </O=ENRON/OU=NA/CN=RECIPIENTS/CN=EMAINZE>, Williams III, Bill </O=ENRON/OU=NA/CN=RECIPIENTS/CN=BWILLIA5>, Thomas, Jake </O=ENRON/OU=NA/CN=RECIPIENTS/CN=JTHOMAS5>, Rawson, Lester </O=ENRON/OU=NA/CN=RECIPIENTS/CN=LRAWSON>, Wolfe, Greg </O=ENRON/OU=NA/CN=RECIPIENTS/CN=GWOLFE>, gwolfe@enron.com, Allen, Phillip K. </O=ENRON/OU=NA/CN=RECIPIENTS/CN=PALLEN>, Kaufman, Paul </O=ENRON/OU=NA/CN=RECIPIENTS/CN=PKAUFMA>, sscott3@enron.com, Pharms, Melinda </O=ENRON/OU=NA/CN=RECIPIENTS/CN=MPHARMS>
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Commenting on his general perception of the settlement conference, the Chie=
f Judge, in his down home manner, did not miss the opportunity to say that =
"you can take a horse to water but you can't make him drink."  Below is a C=
liff Notes version of the Judge's report and recommendation issued at 4:49 =
PM today.  Attached is the complete work. =20

The Judge opined that very large refunds would be due- "While the amount of=
 such refunds is not $8.9 billion as claimed by the State of California, th=
ey do amount to hundreds of millions of dollars, probably more than a billi=
on dollars in an aggregate sum.  ?At the same time, while there are vast su=
ms due for overcharges, there are even larger amounts owed to energy seller=
s by the CAISO, the investor owned utilities, and the State of California. =
 Can a cash refund be required where a much larger amount is due the seller=
?  The Chief Judge thinks not."  Another notable quote:  "?it is the opinio=
n of the Chief Judge that the amount claimed by the State of California has=
 not and cannot be substantiated." =20

The Judge noted that he submitted a proposal of his own on July 5, which wa=
s summarily rejected by the State of California, and that the five separate=
 offers of the various industry groups to settle with California were also =
rejected.=20
 =20
Refund Effective Date- Refund effective date of October 2, 2000, for sales =
in the spot markets of the CAISO and the Cal PX.  The Chief Judge's recomme=
ndations do not go beyond that date.  "Spot market" sales are "sales that a=
re 24 hours or less and that are entered into the day of or day prior to de=
livery."=20

Evidentiary Hearing- "The differences between what the State of California =
believes the buyers in the California markets are owed in refunds and what =
the sellers in the California market believe should be refunded raise mater=
ial issues of fact. The appropriate numbers to calculate potential refunds =
involve factual disputes.  Thus, the Chief Judge recommends that a trial-ty=
pe, evidentiary hearing be ordered limited to a factual record to apply to =
the methodology set forth below.  Because of the urgent need for an answer =
to the refund issues that hearing should be on a 60-day fast track schedule=
.  It is important that a single methodology be adopted for calculating pot=
ential refunds in this proceeding.  However, such a methodology may not be =
appropriate for all sellers in the CAISO's and Cal PX's spot markets in an =
after-the-fact refund calculation.    In any event, sellers not using the m=
ethodology should bear the burden of demonstrating that their costs exceede=
d the results of the methodology recommended herein over the entire refund =
period."

Methodology- The Chief Judge recommends that the methodology set forth in t=
he June 19th Order be used with the modifications discussed below in order =
to calculate any potential refunds that may be due to customers in the CAIS=
O's and Cal PX's spot energy and ancillary service markets for the period O=
ctober 2, 2000 through May 28, 2001. =20

Heat Rate- The actual heat rates, rather than hypothetical heat rates (asso=
ciated with recreating the must-bid requirement of the June 19th Order) pro=
vide the first step in calculating the cost of the marginal unit.

Gas Cost-  The gas costs associated with the marginal unit should be based =
upon a daily spot gas price.  "In the event that the marginal unit is locat=
ed in NP15 (North of Path 15), the daily spot gas price for PG&E Citygate a=
nd Malin should be averaged with the resulting gas price multiplied by the =
marginal unit's heat rate to calculate a clearing price for that hour.  If =
the marginal unit is located in SP15 (South of Path 15), the daily spot gas=
 price for Southern California Gas large packages should be multiplied by t=
he marginal unit's heat rate to calculate a clearing price for that hour.  =
The daily spot gas prices should be for the "midpoint" as published in Fina=
ncial Times Energy's "Gas Daily" publication for the aforementioned deliver=
y points.  The last published gas prices should be used in calculating the =
refund price for the days that Gas Daily is not published (weekends and hol=
idays)."=20

O&M Adder-  An adder of $6/MWh for O&M should also be included with the cal=
culated market clearing price. =20

Emissions Costs- Demonstrable emission costs should be excluded from the ma=
rket clearing price and treated as an additional expense that sellers may s=
ubtract from their respective refund calculation.

Credit Adder- The 10 percent adder should be included in the market clearin=
g price for all transactions that occurred after January 5, 2001 when PG&E =
and SoCal Edison were deemed no longer creditworthy.

Ancillary Services-  Consistent with the June 19th Order, ancillary service=
 prices would be capped at the market clearing price established in the rea=
l-time imbalance energy market.  Adjustment bids would also be treated the =
same as set forth in the June 19th Order.=20

Maximum Price for Non-Emergency Hours- Somewhat unclear.  The Chief Judge r=
ecommends that for purposes of recreating a competitive market for calculat=
ing refunds, the refund methodology should deviate from the 85% non-emergen=
cy requirement of the June 19th Order.  To measure the amount that actual p=
rices may have exceeded the refund price, every hour should be recalculated=
.

Offsets-  "Recalculating the hourly competitive price for purposes of a ref=
und calculation would also permit the Cal PX and CAISO to resettle all char=
ges for the refund period.  Amounts owed to sellers and outstanding amounts=
 due from buyers would be recalculated.  Any refunds could then be offset a=
gainst accurate amounts receivable without sellers netting out any of their=
 purchases from the CAISO and Cal PX during the refund period."

Interest-  Interest should not be charged against any refund amounts unless=
 the refund amount exceeds the amounts that are past due to the seller.

