REQUEST FOR OFFERS



REQUEST FOR OFFERS

September 8, 2004

Subject: PG&E’s Request for Offers (“RFO”) for Intermediate Term Capacity and Energy: 2005-2008

Dear Prospective Bidder:

Pacific Gas and Electric Company (“PG&E” or “Buyer”) is seeking offers from sellers (“Bidders” or “Sellers”) pursuant to which PG&E would enter into agreements to purchase energy, energy options or a financially settled product to meet a portion of its capacity and energy needs for the 2005 through 2008 period.

Bidder information with indicative pricing for the various product offerings, must be submitted by September 29, 2004, 3 p.m. PPT. Bidders should submit the applicable bid table(s) (Attachment 1) containing their offer information, including indicative option premium (“Premium”) prices, as applicable. Bidders should also specify criteria for volume and operational limitations, even if such criteria are not explicit in the Confirmations Agreement for such product.

The instructions for submitting product offerings are set forth herein.

For those Bidders who already have an EEI Master Agreement, a WSPP Agreement, or an ISDA Master Agreement with PG&E (each a “Master Agreement” for purposes of this RFO), such Master Agreement shall govern transactions between the Parties entered into pursuant to this RFO. The Confirmation Agreement, when fully executed, shall become a Confirmation Agreement under the applicable Master Agreement. If there is any conflict between the Confirmation Agreement and the Master Agreement, the Confirmation Agreement governs. If any Bidder does not already have a Master Agreement with PG&E, that Bidder and PG&E must, by the time indicated in the schedule set forth below, enter into such Master Agreement.

Description Products Solicited

In this Request for Offers (“RFO”), PG&E is seeking energy and capacity products to satisfy a portion of its resource needs through 2008. Interested parties may submit one or multiple offers meeting the terms (structures, term and price) of any of the attached confirms. Bidders are encouraged to submit multiple product and pricing structures to increase their chances of having one or more offers short-listed for negotiations.

One of PG&E’s objectives in this solicitation is to procure more operating flexibility than is typically acquired through standard forward and daily option contracts. The minimum flexibility requirement for products described in this RFO (with the exception of the physical index product) is a daily option on a standard block product. However, PG&E will favor offers that provide additional flexibility, as described in the Confirmation Agreements.

Included in the attachments are Confirmation Agreements for the following four products:

1. Unit-Firm Sale

2. System Sale

3. Financial Settlement

4. Physical Market Indexed Sale

Bidders should use the Confirmation Agreement(s) that most closely describes the product(s) offered.

Operating Flexibility

In order to have less reliance on short-term markets to manage the variability of daily load and load shape, each Confirmation Agreement specifies various levels of call rights on the energy. Only a limited number of MWs will be considered that offer the minimum level of flexibility (daily call right on a standard peak product).

Pricing Structure

Bidders may offer a strike price that is either: (1) a fixed $/MWh, or (2) a heat rate in MMBtu/MWh plus variable O&M costs on a per MWh basis. For heat rate offers, PG&E will also accept a heat rate curve with varying output levels

In this RFO, two fixed price and heat rate ranges are targeted:

For fixed price offers:

1) $50 to $70/MWh depending on the product; or

2) Greater than $85/MWh

For heat rate offers:

1) 7,500 to 9,500 MMBtu/MWh; or

2) Greater than 14,000 MMBtu/MWh

The Power Index is Dow Jones NP15. For heat rate based offers, the Gas Index is Platt’s Gas Daily, PG&E City-gate, Midpoint.

Finally, PG&E will also consider fixed volume (no option), floating price products that are priced to the Dow Jones NP15 daily index. For this product, the objective is to acquire firm physical power, but not operating flexibility. PG&E will consider offers for this product subject to market response for financially settled products that complement this offering (see “Physical Delivery vs. Financial Settlement” below).

In general, PG&E’s focus is on the lower heat rate and fixed priced products. However, PG&E will consider attractive higher heat rate and fixed priced products to fill this portion of its portfolio need.

Exercise Frequency and Limitations

PG&E will consider options with unlimited call rights (i.e., Buyer may exercise the various products on a day-ahead basis), and option products with current day exercise flexibility. An option product with current day exercise flexibility, but with other timing limitations (up to three times per month) is also included. For options tied to specific units, Seller shall also provide operational constraints that limit the flexibility of the call option.

Physical Delivery vs. Financial Settlement

One of the Confirmation Agreements allows for a product offering to be settled financially. PG&E will only consider offers from Bidders with senior unsecured long-term debt ratings or issuer ratings of at least A/A2 from major rating agencies for this product, and only in the event there are physical index priced products that can complement this offering. All other products being sought in this RFO are physical.

Ancillary Services (“A/S”)

This RFO allows Bidders to provide the following A/S product: day-ahead spinning reserves and non-spinning reserves. Depending on the Confirmation Agreement, this product will be physical or financially settled. If offered, the MWs of A/S plus any deliverable energy MWs must not exceed the total MWs offered.

Resource Adequacy (“RA”)

PG&E intends to use all the physical offers selected to meet RA requirements. The description of RA requirements reflects PG&E’s best assessment of the terms that are likely to be in place during the term of the Confirmation Agreement. Sellers are requested to identify units or a specific grouping of units for RA purposes. The identified units should be within the control area of the California Independent System Operator (“CAISO”).

Delivery Point

For any physical product, PG&E prefers delivery at NP15. In the event that LMP or nodal pricing takes effect in California during the term of the Confirmation Agreement, PG&E proposes that the power settle at an NP15 “hub” price, defined as the load-weighted average price for the area that currently constitutes NP15. If Seller defines a specific NP15 substation, then the settled price is based on the node that best represents that substation. The financially settled product should also reference the NP15 delivery point.

Term

PG&E is seeking offers between July 1, 2005 and December 31, 2008. Offers may be for the entire period or portions thereof, and may be annual or seasonal (e.g., June through September of each year). Bidders are encouraged to submit multiple offers. Each offer must begin on the first and end on the last day of a calendar month.

Quantity

PG&E will consider offers of 25 MW or more. As noted above, multiple offers are welcomed. Please explain clearly, which, if any, offers are mutually exclusive. For example, a Bidder may state that PG&E may select any combination of offers up to a specified quantity.

Scheduling Provisions

Energy deliveries will be scheduled pursuant to protocols and tariffs of the CAISO and Western Electric Coordinating Council (“WECC”). Alternate scheduling methods may include inter-scheduling coordinator (“SC”) trades between SCs or any other agreed-upon method.

Payments

Payments will be in accordance with the payment provisions of the Master Agreement. .

Requirement for CPUC Review/Confidentiality

An external review group of non-market participants (the “Procurement Review Group”, or “PRG”) will review the offers under consideration. Offers will be treated as confidential by PG&E and by the PRG pursuant to non-disclosure agreements executed between the PRG and PG&E, and by the California Public Utility Commission (“CPUC”) in accordance with Section 583 of the California Public Utilities Code. Successful Bidders will be required to maintain the confidentiality of their transactions with PG&E in accordance with the terms of the applicable Master Agreement.

Credit Requirements

Credit requirements shall be in accordance with the Master Agreement and Confirmation Agreement(s). In all Confirmation Agreements (except for the Physical Market Indexed Sale) Seller will also be responsible for an Independent Amount as set forth in such Confirmation Agreement.

To expand transaction possibilities, PG&E may involve third parties offering credit enhancement products to complement offers that do not meet the credit requirements on their own. These third parties will be given the names of Sellers for which credit enhancement products are being sought, but will not be given the details of specific offers or prices. Based on a particular Bidder’s offer, PG&E would determine how a viable credit enhancement product would be structured, and would separately seek prices for such products. This would occur during both the short-listing and negotiation periods.

In its final evaluation of all bids, PG&E will add the imputed credit cost of each Bidder to such Bidder’s offered price. For the bids complemented by credit enhancement products, PG&E will apply the imputed cost of the third party providing credit enhancement.

As an additional credit alternative for Bidders not able to satisfy credit requirements, PG&E may consider Bidder’s ability to grant PG&E or its designated credit intermediary a security interest in the generating assets being proposed by the Bidder in order to guarantee Bidder’s performance under the Confirmation Agreement. Bidders should indicate their willingness to grant such a security interest and describe the type of security interest that may be granted when submitting a response to this RFO.

Schedule and Procedure for RFO

The table below provides the schedule and procedure for this RFO. The times are in Pacific Prevailing Time (PPT).

|Date/Time |Event |

|September 8, 2004 |PG&E issues RFO |

|September 15, 2004 |Bidders to return non-binding Notice of Intent to bid to PG&E |

|September 29, 2004, 3:00 p.m. |Deadline for Bidders to submit table of product offerings and prices |

|September 29 to October 30, 2004 |PG&E evaluates bids and consults with PRG |

|October 30, 2004 |PG&E notifies short-listed Bidders |

|October 30, 2004 to |PG&E negotiates with short-listed bidders; completion of pertinent Master Agreement |

|January 31, 2005 |is necessary; PG&E notifies winning Bidders (bidders subject to CPUC approval) |

|Q1 2005 |Regulatory approval and execution of Confirmation Agreement(s) |

Contact Information

Any questions relating to this RFO should be addressed to:

Marc Bommersbach

e-mail: MJBe@

All completed bid packages should be delivered or sent by courier service, or email to:

Marc Bommersbach

Manager – Power Contracts

Pacific Gas and Electric Company

Mail Code N12F

P.O. Box 770000

San Francisco, CA 94177-0001

Phone: 415.973.3007

Fax: 415.973.9176, or 415.973.0585

The table of product offerings and indicative pricing must be received by PG&E, at this address, prior to the date and time specified in the table above. Bidders are to specify all relevant information that will allow PG&E to evaluate fully its bid. PG&E will not be responsible for any unsuccessful transmittal by email. Offers must include:

(1) the bid table attached to this RFO (Attachment 1), with any explanatory notes; and

(2) a mark-up of the Confirmation Agreement(s), if changes are proposed.

If no Master Agreement is in effect, one must to be negotiated prior to the execution of any Confirmation Agreement.

Prospective Bidders may contact Mr. Bommersbach by email or phone with questions. PG&E reserves the sole and discretionary right to reject any offer received in response to this RFO for any reason. Additionally, PG&E reserves the right, at its election, (a) not to enter into any binding Confirmation Agreements at the culmination of the RFO process, and (b) to reject any offers received after September 29, 2004. PG&E reserves the right to rescind the RFO process at any time prior to PG&E’s execution of binding Confirmation Agreements.

During the RFO process, should revisions to a Confirmation Agreement be required, PG&E will provide prospective Bidders with such necessary changes. PG&E will not be liable for any costs the Bidder incurs in preparing or submitting its offer(s).

Thank you for your consideration of this solicitation.

Attachments

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