Highlights of Executive Summary by KPMG -- CPUC Audit Report on ,
 ---------------------- Forwarded by Phillip K Allen/HOU/ECT on 01/31/2001=
=20
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=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, Christopher F Calger/PDX/ECT@ECT, Craig H=20
Sutter/HOU/EES@EES, Dan Leff/HOU/EES@EES, Debora Whitehead/HOU/EES@EES,=20
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Youngblood/HOU/ECT@ECT, Douglas Huth/HOU/EES@EES, Edward=20
Sacks/Corp/Enron@ENRON, Eric Melvin/HOU/EES@EES, Erika Dupre/HOU/EES@EES,=
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Evan Hughes/HOU/EES@EES, Fran Deltoro/HOU/EES@EES, Frank W=20
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Hartsoe/Corp/Enron@ENRON, Karen Denne/Corp/Enron@ENRON, Kathy=20
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n=20
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Mark S Muller/HOU/EES@EES, Marsha Suggs/HOU/EES@EES, Marty Sunde/HOU/EES@EE=
S,=20
Meredith M Eggleston/HOU/EES@EES, Michael Etringer/HOU/ECT@ECT, Michael=20
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,=20
mpalmer@enron.com, Neil Bresnan/HOU/EES@EES, Neil Hong/HOU/EES@EES, Paul=20
Kaufman/PDX/ECT@ECT, Paula Warren/HOU/EES@EES, Richard L=20
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Shapiro/NA/Enron@ENRON, Rita Hennessy/NA/Enron@ENRON, Robert=20
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Sandra McCubbin/NA/Enron@ENRON, Sarah Novosel/Corp/Enron@ENRON, Scott=20
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skean@enron.com, Susan J Mara/NA/Enron@ENRON, Tanya Leslie/HOU/EES@EES, Tas=
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Lair/HOU/EES@EES, Ted Murphy/HOU/ECT@ECT, Terri Greenlee/NA/Enron@ENRON, Ti=
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Belden/HOU/ECT@ECT, Tony Spruiell/HOU/EES@EES, Vicki Sharp/HOU/EES@EES,=20
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Bradford/HOU/ECT@ECT, Jubran Whalan/HOU/EES@EES, triley@enron.com, Richard =
B=20
Sanders/HOU/ECT@ECT, Robert C Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT,=
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Fulton/Corp/Enron@ENRON, gfergus@brobeck.com, Kathryn=20
Corbally/Corp/Enron@ENRON, Bruno Gaillard/EU/Enron@Enron, Linda=20
Robertson/NA/Enron@ENRON, Phillip K Allen/HOU/ECT@ECT, Ren, Lazure/Western=
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Region/The Bentley Company@Exchange, Michael Tribolet/Corp/Enron@Enron,=20
Phillip K Allen/HOU/ECT@ECT, Christian Yoder/HOU/ECT@ECT, Richard B=20
Sanders/HOU/ECT@ECT, jklauber@llgm.com, Tamara Johnson/HOU/EES@EES, Robert =
C=20
Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: =20
Subject: Highlights of Executive Summary by KPMG -- CPUC Audit Report on=20
Edison


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

=09"Daniel Douglass" <Douglass@ArterHadden.com>
=0901/30/2001 08:31 AM
=09=09=20
=09=09 To: <Barbara_Klemstine@apsc.com>, <berry@apx.com>, <dcazalet@apx.com=
>,=20
<billr@calpine.com>, <jackp@calpine.com>, <glwaas@calpx.com>,=20
<Ken_Czarnecki@calpx.com>, <gavaughn@duke-energy.com>,=20
<rjhickok@duke-energy.com>, <gtbl@dynegy.com>, <jmpa@dynegy.com>,=20
<jdasovic@enron.com>, <susan_j_mara@enron.com>, <Tamara_Johnson@enron.com>,=
=20
<curt.Hatton@gen.pge.com>, <foothill@lmi.net>, <camiessn@newwestenergy.com>=
,=20
<jcgardin@newwestenergy.com>, <jsmollon@newwestenergy.com>,=20
<rsnichol@newwestenergy.com>, <Curtis_L_Kebler@reliantenergy.com>,=20
<rllamkin@seiworldwide.com>
=09=09 cc:=20
=09=09 Subject: CPUC Audit Report on Edison

The following are the highlights from the Executive Summary of the KPMG aud=
it=20
report on Southern California Edison:
=20
I. Cash Needs
Highlights:
SCE=01,s original cash forecast, dated as December 28, 2000, projects a com=
plete=20
cash depletion date of February 1, 2001. Since then SCE has instituted a=20
program of cash conservation that includes suspension of certain obligation=
s=20
and other measures.=20
Based on daily cash forecasts and cash conservation activities, SCE=01,s=20
available cash improved through January 19 from an original estimate of $51=
.8=20
million to $1.226 billion. The actual cash flow, given these cash=20
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=20
extend or renew credit as it has become due.
At present, there are no additional sources of credit open to SCE.
SCE=01,s loan agreements provide for specific clauses with respect to defau=
lt.=20
Generally, these agreements provide for the debt becoming immediately due a=
nd=20
payable.
SCE=01,s utility plant assets are used to secure outstanding mortgage bond=
=20
indebtedness, although there is some statutory capacity to issue more=20
indebtedness if it were feasible to do so.
Credit ratings agencies have downgraded SCE=01,s credit ratings on most of =
its=20
rated indebtedness from solid corporate ratings to below investment grade=
=20
issues within the last three weeks.
III. Energy Cost Scenarios
Highlights
This report section uses different CPUC supplied assumptions to assess=20
various price scenarios upon SCE=01,s projected cash depletion dates. Under=
 such=20
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=
=20
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=
=20
be eliminated with approximately 75% of the total staff reduction coming fr=
om=20
contract employees.
Under the Plan, Capital Improvement Costs totaling $383 million are for the=
=20
most part being deferred to a future date.
SCE dividends to its common shareholder and preferred stockholders and=20
executive bonuses have been suspended, resulting in an additional cost=20
savings of approximately $92 million.
V. Accounting Mechanisms to Track Stranded Cost Recovery (TRA and TCBA=20
Activity)
Highlights:
As of December 31, 2000, SCE reported an overcollected balance in the=20
Transition Cost Balancing Account (TCBA) Account of $494.5 million. This=20
includes an estimated market valuation of its hydro facilities of $500=20
million and accelerated revenues of $175 million.
As of December 31, 2000, SCE reported an undercollected balance in SCE=01,s=
=20
Transition Account (TRA) of $4.49 billion.
Normally, the generation memorandum accounts are credited to the TCBA at th=
e=20
end of each year. However, the current generation memorandum account credit=
=20
balance of $1.5 billion has not been credited to the TCBA, pursuant to=20
D.01-01-018.
Costs of purchasing generation are tracked in the TRA and revenues from=20
generation are tracked in the TCBA. Because these costs and revenues are=20
tracked separately, the net liability from procuring electric power, as=20
expressed in the TRA, are overstated.
TURN Proposal
As part of our review, the CPUC asked that we comment on the proposal of TU=
RN=20
to change certain aspects of the regulatory accounting for transition asset=
s.=20
Our comments are summarized as follows:
The Proposal would have no direct impact on the cash flows of SCE in that i=
t=20
would not directly generate nor use cash.
The Proposal=01,s impact on SCE=01,s balance sheet would initially be to sh=
ift=20
costs between two regulatory assets.
TURN=01,s proposal recognizes that because the costs of procuring power and=
 the=20
revenues from generating power are tracked separately, the undercollection =
in=20
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=
=20
positive cash flow from operations of $7 billion.
During the same time period, SCE paid dividends and other distributions to=
=20
its parent, Edison International, of approximately $4.8 billion.
Edison International used the funds from dividends to pay dividends to its=
=20
shareholders of $1.6 billion and repurchased shares of its outstanding comm=
on=20
stock of $2.7 billion, with the remaining funds being used for administrati=
ve=20
and general costs, investments, and other corporate purposes.
[there is no Section VII]
=20
VIII. Earnings of California Affiliates
SCE=01,s payments for power to its affiliates were approximately $400-$500=
=20
million annually and remained relatively stable from 1996 through 1999.=20
In 2000, the payments increased by approximately 50% to over $600 million.=
=20
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=20
www.cpuc.ca.gov.
=20
Dan
mike.grigsby@enron.com, keith.holst@enron.com