From: phillip.allen@enron.com
To: mike.grigsby@enron.com, keith.holst@enron.com
Date: 2001-01-31 07:14:00+00:00
Subject: Highlights of Executive Summary by KPMG -- CPUC Audit Report on
 Edison

---------------------- Forwarded by Phillip K Allen/HOU/ECT on 01/31/2001 
07:12 AM ---------------------------


Susan J Mara@ENRON
01/30/2001 10:10 AM
To: Alan Comnes/PDX/ECT@ECT, Angela Schwarz/HOU/EES@EES, Beverly 
Aden/HOU/EES@EES, Bill Votaw/HOU/EES@EES, Brenda Barreda/HOU/EES@EES, Carol 
Moffett/HOU/EES@EES, Cathy Corbin/HOU/EES@EES, Chris H Foster/HOU/ECT@ECT, 
Christina Liscano/HOU/EES@EES, Christopher F Calger/PDX/ECT@ECT, Craig H 
Sutter/HOU/EES@EES, Dan Leff/HOU/EES@EES, Debora Whitehead/HOU/EES@EES, 
Dennis Benevides/HOU/EES@EES, Don Black/HOU/EES@EES, Dorothy 
Youngblood/HOU/ECT@ECT, Douglas Huth/HOU/EES@EES, Edward 
Sacks/Corp/Enron@ENRON, Eric Melvin/HOU/EES@EES, Erika Dupre/HOU/EES@EES, 
Evan Hughes/HOU/EES@EES, Fran Deltoro/HOU/EES@EES, Frank W 
Vickers/HOU/ECT@ECT, Gayle W Muench/HOU/EES@EES, Ginger 
Dernehl/NA/Enron@ENRON, Gordon Savage/HOU/EES@EES, Harold G 
Buchanan/HOU/EES@EES, Harry Kingerski/NA/Enron@ENRON, Iris Waser/HOU/EES@EES, 
James D Steffes/NA/Enron@ENRON, James W Lewis/HOU/EES@EES, James 
Wright/Western Region/The Bentley Company@Exchange, Jeff Messina/HOU/EES@EES, 
Jeremy Blachman/HOU/EES@EES, Jess Hewitt/HOU/EES@EES, Joe 
Hartsoe/Corp/Enron@ENRON, Karen Denne/Corp/Enron@ENRON, Kathy 
Bass/HOU/EES@EES, Kathy Dodgen/HOU/EES@EES, Ken Gustafson/HOU/EES@EES, Kevin 
Hughes/HOU/EES@EES, Leasa Lopez/HOU/EES@EES, Leticia Botello/HOU/EES@EES, 
Mark S Muller/HOU/EES@EES, Marsha Suggs/HOU/EES@EES, Marty Sunde/HOU/EES@EES, 
Meredith M Eggleston/HOU/EES@EES, Michael Etringer/HOU/ECT@ECT, Michael 
Mann/HOU/EES@EES, Michelle D Cisneros/HOU/ECT@ECT, Mike M Smith/HOU/EES@EES, 
mpalmer@enron.com, Neil Bresnan/HOU/EES@EES, Neil Hong/HOU/EES@EES, Paul 
Kaufman/PDX/ECT@ECT, Paula Warren/HOU/EES@EES, Richard L 
Zdunkewicz/HOU/EES@EES, Richard Leibert/HOU/EES@EES, Richard 
Shapiro/NA/Enron@ENRON, Rita Hennessy/NA/Enron@ENRON, Robert 
Badeer/HOU/ECT@ECT, Roger Yang/SFO/EES@EES, Rosalinda Tijerina/HOU/EES@EES, 
Sandra McCubbin/NA/Enron@ENRON, Sarah Novosel/Corp/Enron@ENRON, Scott 
Gahn/HOU/EES@EES, Scott Stoness/HOU/EES@EES, Sharon Dick/HOU/EES@EES, 
skean@enron.com, Susan J Mara/NA/Enron@ENRON, Tanya Leslie/HOU/EES@EES, Tasha 
Lair/HOU/EES@EES, Ted Murphy/HOU/ECT@ECT, Terri Greenlee/NA/Enron@ENRON, Tim 
Belden/HOU/ECT@ECT, Tony Spruiell/HOU/EES@EES, Vicki Sharp/HOU/EES@EES, 
Vladimir Gorny/HOU/ECT@ECT, Wanda Curry/HOU/EES@EES, William S 
Bradford/HOU/ECT@ECT, Jubran Whalan/HOU/EES@EES, triley@enron.com, Richard B 
Sanders/HOU/ECT@ECT, Robert C Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, 
dwatkiss@bracepatt.com, rcarroll@bracepatt.com, Donna 
Fulton/Corp/Enron@ENRON, gfergus@brobeck.com, Kathryn 
Corbally/Corp/Enron@ENRON, Bruno Gaillard/EU/Enron@Enron, Linda 
Robertson/NA/Enron@ENRON, Phillip K Allen/HOU/ECT@ECT, Ren, Lazure/Western 
Region/The Bentley Company@Exchange, Michael Tribolet/Corp/Enron@Enron, 
Phillip K Allen/HOU/ECT@ECT, Christian Yoder/HOU/ECT@ECT, Richard B 
Sanders/HOU/ECT@ECT, jklauber@llgm.com, Tamara Johnson/HOU/EES@EES, Robert C 
Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:  
Subject: Highlights of Executive Summary by KPMG -- CPUC Audit Report on 
Edison


----- Forwarded by Susan J Mara/NA/Enron on 01/30/2001 10:02 AM -----

	"Daniel Douglass" <Douglass@ArterHadden.com>
	01/30/2001 08:31 AM
		 
		 To: <Barbara_Klemstine@apsc.com>, <berry@apx.com>, <dcazalet@apx.com>, 
<billr@calpine.com>, <jackp@calpine.com>, <glwaas@calpx.com>, 
<Ken_Czarnecki@calpx.com>, <gavaughn@duke-energy.com>, 
<rjhickok@duke-energy.com>, <gtbl@dynegy.com>, <jmpa@dynegy.com>, 
<jdasovic@enron.com>, <susan_j_mara@enron.com>, <Tamara_Johnson@enron.com>, 
<curt.Hatton@gen.pge.com>, <foothill@lmi.net>, <camiessn@newwestenergy.com>, 
<jcgardin@newwestenergy.com>, <jsmollon@newwestenergy.com>, 
<rsnichol@newwestenergy.com>, <Curtis_L_Kebler@reliantenergy.com>, 
<rllamkin@seiworldwide.com>
		 cc: 
		 Subject: CPUC Audit Report on Edison

The following are the highlights from the Executive Summary of the KPMG audit 
report on Southern California Edison:
 
I. Cash Needs
Highlights:
SCE,s original cash forecast, dated as December 28, 2000, projects a complete 
cash depletion date of February 1, 2001. Since then SCE has instituted a 
program of cash conservation that includes suspension of certain obligations 
and other measures. 
Based on daily cash forecasts and cash conservation activities, SCE,s 
available cash improved through January 19 from an original estimate of $51.8 
million to $1.226 billion. The actual cash flow, given these cash 
conservation activities, extends the cash depletion date.
II. Credit Relationships
Highlights:
SCE has exercised all available lines of credit and has not been able to 
extend or renew credit as it has become due.
At present, there are no additional sources of credit open to SCE.
SCE,s loan agreements provide for specific clauses with respect to default. 
Generally, these agreements provide for the debt becoming immediately due and 
payable.
SCE,s utility plant assets are used to secure outstanding mortgage bond 
indebtedness, although there is some statutory capacity to issue more 
indebtedness if it were feasible to do so.
Credit ratings agencies have downgraded SCE,s credit ratings on most of its 
rated indebtedness from solid corporate ratings to below investment grade 
issues within the last three weeks.
III. Energy Cost Scenarios
Highlights
This report section uses different CPUC supplied assumptions to assess 
various price scenarios upon SCE,s projected cash depletion dates. Under such 
scenarios, SCE would have a positive cash balance until March 30, 2001.
IV. Cost Containment Initiatives
Highlights
SCE has adopted a $460 million Cost Reduction Plan for the year 2001.
The Plan consists of an operation and maintenance component and a capital 
improvement component as follows (in millions):
Operating and maintenance costs     $ 77
Capital Improvement Costs                383
Total                                             $ 460
The Plan provides for up to 2,000 full, part-time and contract positions to 
be eliminated with approximately 75% of the total staff reduction coming from 
contract employees.
Under the Plan, Capital Improvement Costs totaling $383 million are for the 
most part being deferred to a future date.
SCE dividends to its common shareholder and preferred stockholders and 
executive bonuses have been suspended, resulting in an additional cost 
savings of approximately $92 million.
V. Accounting Mechanisms to Track Stranded Cost Recovery (TRA and TCBA 
Activity)
Highlights:
As of December 31, 2000, SCE reported an overcollected balance in the 
Transition Cost Balancing Account (TCBA) Account of $494.5 million. This 
includes an estimated market valuation of its hydro facilities of $500 
million and accelerated revenues of $175 million.
As of December 31, 2000, SCE reported an undercollected balance in SCE,s 
Transition Account (TRA) of $4.49 billion.
Normally, the generation memorandum accounts are credited to the TCBA at the 
end of each year. However, the current generation memorandum account credit 
balance of $1.5 billion has not been credited to the TCBA, pursuant to 
D.01-01-018.
Costs of purchasing generation are tracked in the TRA and revenues from 
generation are tracked in the TCBA. Because these costs and revenues are 
tracked separately, the net liability from procuring electric power, as 
expressed in the TRA, are overstated.
TURN Proposal
As part of our review, the CPUC asked that we comment on the proposal of TURN 
to change certain aspects of the regulatory accounting for transition assets. 
Our comments are summarized as follows:
The Proposal would have no direct impact on the cash flows of SCE in that it 
would not directly generate nor use cash.
The Proposal,s impact on SCE,s balance sheet would initially be to shift 
costs between two regulatory assets.
TURN,s proposal recognizes that because the costs of procuring power and the 
revenues from generating power are tracked separately, the undercollection in 
the TRA is overstated.
VI. Flow of Funds Analysis
Highlights:
In the last five years, SCE had generated net income of $2.7 billion and a 
positive cash flow from operations of $7 billion.
During the same time period, SCE paid dividends and other distributions to 
its parent, Edison International, of approximately $4.8 billion.
Edison International used the funds from dividends to pay dividends to its 
shareholders of $1.6 billion and repurchased shares of its outstanding common 
stock of $2.7 billion, with the remaining funds being used for administrative 
and general costs, investments, and other corporate purposes.
[there is no Section VII]
 
VIII. Earnings of California Affiliates
SCE,s payments for power to its affiliates were approximately $400-$500 
million annually and remained relatively stable from 1996 through 1999. 
In 2000, the payments increased by approximately 50% to over $600 million. 
This increase correlates to the increase in market prices
for natural gas for the same period.
A copy of the report is available on the Commission website at 
www.cpuc.ca.gov.
 
Dan