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QUESTIONS AND ANSWERS ON THE ENRON CONTRACT WITH THE UNIVERSITY OF CALIFORNIA AND THE CALIFORNIA STATE UNIVERSITY


Q. What is the contract between Enron Energy, Inc. and the University of California and the California State University?

A. The contract was signed in 1998 and is due to expire on March 31, 2002. It provides for Enron, a Houston-based energy supplier and broker, to supply electricity and other services to most campuses within the two university systems at a set price. Because of the contract, the universities were able to escape the skyrocketing electricity prices that have occurred over the past several months. (For example, UC San Diego saved $12.3 million over an eight-month period between April 1, 2000 and Nov. 30, 2001under the contract.) The University of California at Riverside is not included in the contract. It has a separate contract with the City of Riverside.

Q. Why is Enron attempting to unilaterally change the contract?

A. Energy brokers such as Enron can buy a future supply of electricity at a set price (akin to a wholesale price) for resale at retail prices to Enron customers. When the price of electricity in California began to soar under deregulation, Enron realized that it could re-sell the electricity it had acquired for UC and CSU for much higher prices on the spot market, rather than sending that power to CSU and UC at the lower, contract-specified price. So it is attempting to shift the two university systems away from being "direct access" Enron customers to being Pacific Gas & Electricity (PG&E) and Southern California Edison (SCE) customers. That would free up that electricity for sale at prices more advantageous to Enron.

Q. But hasn't Enron guaranteed that the price of the electricity will remain the same to CSU and UC for the remainder of the contract?

A. Yes, Enron has given that assurance. But the cost of shifting the universities away from being direct access customers of Enron to PG&E and SCE customers could still expose California students, parents and taxpayers to millions of dollars in additional energy cost. Depending upon circumstances, that total of potential exposure for UC and CSU combined could be between $132 million and $297 million.

That's because:

· The change would make UC and CSU potentially liable for helping PG&E and SCE pay off billions of dollars in debts accumulated when neither system were SCE or PG&E customers.

· It would result in removal of high-tech meters on UC and CSU campuses that provide sophisticated data on electricity use at peak loads, along with additional information the campuses use to conserve electricity. By switching the meters, the campuses would lose much of their data and conservation programs would become less effective.

· It would force a wholesale revamping of the complex billing systems set up by both university systems under the Enron contract at a potential cost of millions.

· It would also force the universities to cover Enron's risk, (estimated by Enron to be "tens of millions of dollars") of supplying energy to the campuses for the remaining 13 months of the four-year contract. That situation would occur because Enron would be buying electricity to supply the campuses on the spot market, having already sold the power previously earmarked for UC and CSU.

Q. The two university systems would become "bundled customers" of PG&E and SCE if Enron succeeds in unilaterally changing the contract. What's a "bundled customer"?

A. A "bundled customer" receives a package of services -- a bundle of them -- from the utility, including billing, transmission and scheduling of electricity, along with the power supply itself.

Q. What is the University of California's total energy consumption?

A. The university's systemwide peak load is 332 megawatts. A single megawatt powers about 1,000 homes.

Q. What is the University of California's annual electricity bill?

A. The university's annual electric bill is approximately $87 million. Its natural gas bill is $26 million. For FY 1999-2000, its total gas and electric bill was $113 million

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