Summary- Judge's Recommendation re Retroactive Refunds ,
 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.
james.steffes@enron.com, t..hodge@enron.com, c..williams@enron.com, 