United States of America
Before the
Federal Energy Regulatory Commission

AFFIDAVIT OF PHILIP R. LEIBER

State of California			)
					)	
City of Folsom			)
County of Sacramento		)

My name is Philip R. Leiber.  Currently, I am the Director of Financial Planning for the California Independent System Operator Corporation (ISO).  I am a Certified Public Accountant in the State of California.  My business address is 151 Blue Ravine Road, Folsom, California  95630.  I began my employment with the California Independent System Operator on September 16, 1997.
My involvement with ISO and California Power Exchange Corporation (PX) matters began in December 1996 when Coopers & Lybrand, my former employer, was retained by the ISO and PX Restructuring Trusts to provide accounting services.  Coopers & Lybrand’s responsibilities as accountants to the Trusts included the following:
•	Maintaining accounting records
•	Disbursement of funds to vendors
•	Preparing and issuing monthly financial reports
•	Developing quarterly cash flow budgets for the Trusts
•	Providing financial status reports to the Trustee and Trust Advisory Committees
•	Maintaining all original agreements and contracts
•	Maintaining bank relations, including borrowing funds as required
•	Investing excess cash
•	Assisting with tax matters, including sales & use tax, and tax status.
I was responsible for these activities on a day to day basis.  I was also responsible for coordinating additional resources within Coopers & Lybrand to provide additional expertise where required, such as on taxation related matters.
The Quarterly Expenditure Plan (QEP) Process 
Under the decisions issued by the California Public Utilities Commission (CPUC) authorizing the establishment of the ISO Restructuring Trust (and PX Restructuring Trust), the Trusts were, among other things, required to report to the CPUC certain financial information about the activities of the Trusts.  These reports were called Quarterly Expenditure Plans (QEP) and they included the following information:
•	Funds borrowed or collected to date
•	Funds expended on ISO/PX development and progress by major tasks to date
•	Comparison of recorded vs. estimated expenditures
•	Deviations of funds expended during quarter from estimated quarterly cash flow
•	Explanations of significant events which justify deviations from estimated quarterly expenditures
•	Funds paid to ISO/PX Corporations
•	Projected expenditures in upcoming quarter
•	Projected expenditures vs. cost estimates
•	Deviations and significant events anticipated
•	New work by contractors to begin during upcoming quarter and justification
•	Vendor selection process, criteria for selection, and basis for award/decision
•	Funds requested by ISO/PX Corporation
These reports also discussed the allocation of costs for the major contracts, such as the MCI contract.  The QEP’s were not public documents as the budget information of the Trusts was protected under a confidentiality order.  This was done so that the budget information would not be available to give potential vendors for the ISO and PX the ability to price their services to the funds available to the ISO and PX.  
Part of my responsibilities at Coopers & Lybrand included developing the Quarterly Expenditure Plans for both the ISO and PX Restructuring Trusts.  This involved meeting with the Trustee, his staff, and the project management firms the Trustee retained, who were responsible for overseeing the development work, and obtaining their forecasts about the cost and timing of the various work tasks.   The QEPs represent the comprehensive estimate of total project costs, and were issued to the CPUC thirty days prior to the commencement of the calendar quarter to which they related.  The QEPs were also submitted to the Bank of America, the lead bank under which the ISO and PX Restructuring Trust have a credit line.

Cost Allocation
Several vendors providing services to the ISO and PX Trusts provided a single invoice that did not provide a breakdown of costs to be assigned to the ISO and PX.  Based on the allocation rationale described below, such joint costs were paid to vendors by issuing a separate check or wire transfer from the separate accounts of the ISO and PX Restructuring Trusts.  
As the accountant responsible for the payment of these invoices, it was necessary for me to exercise judgment in some cases as to what proportion of costs would be paid by the ISO and by the PX, respectively.  All aspects of the ISO and PX development were subject to the oversight of the California Public Utilities Commission through the Quarterly Expenditure Plan reporting process.  The CPUC had the ability to intervene and modify the spending plans of the ISO and PX.  It did not do so. 
The joint costs were allocated between the ISO and PX on the basis of benefits ascribed.  In most cases, a readily available measure of the benefits enjoyed by the respective entities was available.  An example of the type of cost categories for which it was possible to allocate costs on this basis follows:

Category	Basis	Allocation to ISO	
Rental/Occupancy Costs	Square feet allotted to ISO v. PX	96%	
Employment Advertising	Ratio of prospective employees for the ISO v. PX	76%	
Loan Amendment Costs	Total credit available to ISO v. PX	76%	
Project Management	Overall project management time allocated according to direct time spent per work category	93%	
For other categories, it was not possible to make such a precise allocation, but it was possible to determine approximately the amount of time spent on the matters related to one entity compared to the other.  

Category	
Basis	Allocation to
ISO	
1.  Accounting	Transaction volume and overall reporting responsibilities	60-65%	
2.  Regulatory filings	Approximate time spent on ISO/PX work, ascertained through discussions with the vendor	75-80%	
3.  Financial Consultants	Approximate time spent on ISO/PX work, ascertained through discussions with the vendor	60-75%	
4.  Trust Advisory Committee
   Costs and Trustee’s travel costs	Proportion of meeting time dealing with ISO v. PX issues	50-80%	
In other cases, it was not possible to directly ascribe the benefits to the ISO as opposed to the PX.  In such cases, a default ratio of 75% of the costs was ascribed to the ISO and 25% to the PX.  This default ratio was established by the WEPEX steering committee and recognized by the Technical Advisory Committees of the Trusts.  This ratio approximates the sizes of the budgets and credit lines established for the ISO and PX of $191 million and $59 million, respectively.  It also approximates the size of the ISO and PX Corporations in terms of headcount.  The costs of the requests for proposals (RFP’s) and bid evaluation assistance were allocated using this standard ratio.  The RFP’s were the documents issued to potential vendors detailing the technical requirements for the various work tasks in ISO and PX development.  After responses from the bidders were received, outside consultants were used to evaluate the vendors’ bids as part of the bid evaluation process.  Because contracts for certain of the work tasks were to include services for both the ISO and PX, it was necessary to allocate a portion of these costs to both entities.  The MCI Communications contract was an example of this.  
The costs related to the MCI Communications Contract were initially allocated between the ISO and PX in a 75% to 25% ratio, respectively.  During the second quarter of 1997, the project management firm responsible for the MCI contract for both the ISO and PX, Duke Engineering & Services and one of the initial ISO managers, reviewed the contract and determined that the allocation for the up-front development costs should be 86% to the ISO and 14% to the PX.  This allocation percentage was in the scope of the recent audit conducted by an independent audit firm, described below.   
As for the ongoing costs, the allocation was based on the predicted proportion of the total service availability that each entity would use.  The allocation that has been reflected in the ISO and PX Section 35 filings represents the best estimates of the management of both the ISO and PX as to what the ratio should be. 

Independent Audit
The ISO and PX Restructuring Trusts recently underwent a comprehensive audit that was required under the Trust Agreements.  Those agreements require that an audit must be performed upon the change of Trustees.  Mr. S. David Freeman, the initial Trustee of both Trusts, resigned effective September 4, 1997 and pursuant to the Trust agreements, the audit was performed. Currently, the audit is still in draft form; however on November 19, 1997, the auditing firm of Lautze & Lautze sent a letter to the current Trustee summarizing its results.  The letter is attached as Attachment A.  It is my understanding that the cost allocation conclusions will not change when the report is finalized.  
This audit covered the cash disbursements made by the ISO and PX Restructuring Trusts from their inception (October 25, 1996), and also reported on the reasonableness of the allocation of costs between the two Trusts.   The auditors agreed that the cost allocations made between the ISO and PX were made on a reasonable basis, except for minor differences resulting in an over-allocation of costs to the PX of $191,421.  This difference will be settled by transferring funds from the ISO to the PX to reimburse the PX for this overallocation of costs.  

Payment of Costs of Investor Owned Utilities
	The Trust Agreements for the ISO and PX Restructuring Trust state that the Trusts will not reimburse the Investor Owned Utilities (IOUs) for the costs of their personnel assigned to the ISO and PX development projects.  No such costs have been paid from the ISO and PX Trust funds.
The IOUs have received funds from the ISO and PX Trusts for two items:  (1) pre-Trust expenditures to third parties, and (2) travel costs.  Pre-Trust expenditures to third parties were expenditures made by the IOUs on behalf of the ISO and PX Trusts.   This was necessary to allow ISO and PX development to proceed in a timely manner in order to meet the January 1, 1998 deadline.  Before the ISO and PX Trusts were established and able to expend funds on their own, the IOUs, under the authority of the WEPEX Steering Committee (the predecessor to the Trusts,)  contracted with vendors for certain development related tasks.  These tasks included:
•	Preparation of functional specification document
•	Preparation of conceptual design documents
•	Engineering assistance in bid evaluation and field prototypes
•	Legal costs to implement the Trusts
•	Directors and officers insurance coverage for the Trust Advisory Committees
•	Other minor items
These costs were recommended for reimbursement by the Trusts at the December 19, 1996 meeting of the Trust Advisory Committees for both the ISO and PX.  The total commitments made by the IOUs to third party vendors for these items amounted approximately $2,564,000 for the ISO and $940,000 for the PX.  The IOUs did not pay those entire amounts to the third party vendors, because once the ISO and PX Trusts were established, the vendors were able to directly invoice the Trusts for some portion of these commitments.  Amounts paid to the IOUs were $1,756,000 for the ISO and $583,000 for the PX.
Other payments made to the IOUs included reimbursement for the direct travel costs of their personnel involved in the ISO and PX projects as: (1) members of the Trust Advisory Committees, or ISO and PX Corporation Governing Boards, and (2) Interim Staff (“User Groups”) 
Members of the Trust Advisory Committees, and ISO/PX Governing Boards are entitled to reimbursement for their travel costs to attend the meetings that are periodically held throughout the State of California.  All members of these entities, regardless of which stakeholder groups they represent, are entitled to such reimbursement under the Trust Agreement, or Corporation Bylaws.  The IOUs received the same treatment in these matters as any of the other groups involved in the restructuring effort.  No labor or related costs of IOU personnel were reimbursed by the Trust or ISO/PX Corporations.
During 1997, as development efforts on the ISO and PX hardware and software were underway, it became evident that suppliers needed to work with representatives of the ISO and PX to clarify what the specific needs of the ISO and PX would be with respect to that hardware and software.  However, as the Corporations were only established in May 1997, and it took some time to bring permanent staff on board, “interim staff” were used to perform these critical functions.  These interim staff, or user groups as they were also known, consisted of consultants and staff from municipal and investor owned utilities.  Consultants were paid their fees and expenses.  Reimbursements were made to the municipal utilities for their loaned staff’s payroll and travel costs.  For staff from the IOU’s, only their travel and related costs were reimbursed to the IOUs.