Message-ID: <19109058.1075848045649.JavaMail.evans@thyme> Date: Wed, 21 Mar 2001 01:53:00 -0800 (PST) From: jeff.dasovich@enron.com To: alan.comnes@enron.com, angela.schwarz@enron.com, beverly.aden@enron.com, bill.votaw@enron.com, brenda.barreda@enron.com, carol.moffett@enron.com, cathy.corbin@enron.com, chris.foster@enron.com, christina.liscano@enron.com, craig.sutter@enron.com, dan.leff@enron.com, debora.whitehead@enron.com, dennis.benevides@enron.com, don.black@enron.com, dorothy.youngblood@enron.com, douglas.huth@enron.com, edward.sacks@enron.com, eric.melvin@enron.com, erika.dupre@enron.com, evan.hughes@enron.com, fran.deltoro@enron.com, gayle.muench@enron.com, ginger.dernehl@enron.com, gordon.savage@enron.com, harold.buchanan@enron.com, harry.kingerski@enron.com, iris.waser@enron.com, james.steffes@enron.com, james.lewis@enron.com, james.wright@enron.com, jeff.messina@enron.com, jeremy.blachman@enron.com, jess.hewitt@enron.com, joe.hartsoe@enron.com, karen.denne@enron.com, kathy.bass@enron.com, kathy.dodgen@enron.com, ken.gustafson@enron.com, kevin.hughes@enron.com, leasa.lopez@enron.com, leticia.botello@enron.com, mark.muller@enron.com, marsha.suggs@enron.com, marty.sunde@enron.com, meredith.eggleston@enron.com, michael.etringer@enron.com, michael.mann@enron.com, michelle.cisneros@enron.com, mpalmer@enron.com, neil.bresnan@enron.com, neil.hong@enron.com, paul.kaufman@enron.com, paula.warren@enron.com, richard.zdunkewicz@enron.com, richard.leibert@enron.com, richard.shapiro@enron.com, rita.hennessy@enron.com, roger.yang@enron.com, rosalinda.tijerina@enron.com, sandra.mccubbin@enron.com, sarah.novosel@enron.com, scott.gahn@enron.com, scott.stoness@enron.com, sharon.dick@enron.com, skean@enron.com, tanya.leslie@enron.com, tasha.lair@enron.com, ted.murphy@enron.com, terri.greenlee@enron.com, tim.belden@enron.com, tony.spruiell@enron.com, vicki.sharp@enron.com, vladimir.gorny@enron.com, wanda.curry@enron.com, william.bradford@enron.com, kathryn.corbally@enron.com, jubran.whalan@enron.com, triley@enron.com, richard.sanders@enron.com, robert.williams@enron.com, greg.wolfe@enron.com, james.wright@enron.com, dirk.vanulden@enron.com, steve.walker@enron.com, jennifer.rudolph@enron.com, martin.wenzel@enron.com, douglas.condon@enron.com, wgang@enron.com, sgovenar@govadv.com, hgovenar@govadv.com, jklauber@llgm.com, mike.smith@enron.com, john.neslage@enron.com, janel.guerrero@enron.com, eric.letke@enron.com, richard.sanders@enron.com, gfergus@brobeck.com, michael.tribolet@enron.com, robert.frank@enron.com, david.leboe@enron.com Subject: End to Price Cap Front and Center in IOUs' Negotiations with Gov. Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: 7bit X-From: Jeff Dasovich X-To: Alan Comnes, Angela Schwarz, Beverly Aden, Bill Votaw, Brenda Barreda, Carol Moffett, Cathy Corbin, Chris H Foster, Christina Liscano, Craig H Sutter, Dan Leff, Debora Whitehead, Dennis Benevides, Don Black, Dorothy Youngblood, Douglas Huth, Edward Sacks, Eric Melvin, Erika Dupre, Evan Hughes, Fran Deltoro, Gayle W Muench, Ginger Dernehl, Gordon Savage, Harold G Buchanan, Harry Kingerski, Iris Waser, James D Steffes, James W Lewis, James Wright, Jeff Messina, Jeremy Blachman, Jess Hewitt, Joe Hartsoe, Karen Denne, Kathy Bass, Kathy Dodgen, Ken Gustafson, Kevin Hughes, Leasa Lopez, Leticia Botello, Mark S Muller, Marsha Suggs, Marty Sunde, Meredith M Eggleston, Michael Etringer, Michael Mann, Michelle D Cisneros, mpalmer@enron.com, Neil Bresnan, Neil Hong, Paul Kaufman, Paula Warren, Richard L Zdunkewicz, Richard Leibert, Richard Shapiro, Rita Hennessy, Roger Yang, Rosalinda Tijerina, Sandra McCubbin, Sarah Novosel, Scott Gahn, Scott Stoness, Sharon Dick, skean@enron.com, Tanya Leslie, Tasha Lair, Ted Murphy, Terri Greenlee, Tim Belden, Tony Spruiell, Vicki Sharp, Vladimir Gorny, Wanda Curry, William S Bradford, Kathryn Corbally, Jubran Whalan, triley@enron.com, Richard B Sanders, Robert C Williams, Greg Wolfe, James Wright, Dirk vanUlden, Steve Walker, Jennifer Rudolph, Martin Wenzel, Douglas Condon, wgang@enron.com, Scott Govenar , Hedy Govenar @ ENRON, jklauber@llgm.com, Mike D Smith, John Neslage, Janel Guerrero, Eric Letke, Richard B Sanders, gfergus@brobeck.com, Michael Tribolet, Robert Frank, David Leboe X-cc: X-bcc: X-Folder: \Steven_Kean_June2001_3\Notes Folders\California X-Origin: KEAN-S X-FileName: skean.nsf Utilities' Demand Blocks Bailout NEGOTIATIONS HIT SNAG: PG&E, Edison want end to price freeze if they sell transmission lines to state David Lazarus, Chronicle Staff Writer Wednesday, March 21, 2001 ,2001 San Francisco Chronicle URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/21/M N114450.DTL California's near-bankrupt utilities are demanding that higher electric rates be a part of any deal to sell the state their power lines, The Chronicle has learned. A rate increase -- perhaps of more than 50 percent, according to earlier industry estimates -- would certainly draw a firestorm of protest from consumer groups and force Gov. Gray Davis to backtrack from earlier pledges that rates would remain unchanged. Nevertheless, sources close to negotiations on the deal said Pacific Gas and Electric Co. and Southern California Edison are attempting to make higher rates a condition for agreeing to a bailout scheme in which they would sell the state their transmission systems and some land. The sources said the talks hit a new snag this week when state officials realized that fine print sought by the companies could require the Public Utilities Commission to pass along all of the utilities' costs to ratepayers. The sources said this would end a rate freeze that shields consumers from runaway wholesale electricity prices. The inclusion of potential rate increases in the talks reflects the growing complexity of a deal originally intended by Davis to stabilize the finances of PG&E and Edison so banks would resume loans to the cash-strapped utilities. The negotiations subsequently have expanded to involve a state purchase of the utilities' transmission networks and acquisition of utility-owned land, including spectacular coastal property near PG&E's Diablo Canyon nuclear power plant. Now they also have embraced further deregulation of California's dysfunctional electricity market. "Clearly, one of the terms being discussed is the regulatory environment," said Joseph Fichera, head of Saber Partners, a New York investment bank that is advising Davis in the talks. "The past situation has not worked well," he added. "The utilities want some certainty about their future." TENTATIVE DEAL WITH EDISON To date, the governor has announced a tentative agreement with Edison for the state to buy the utility's power lines for almost $3 billion. Discussions with PG&E for a similar accord have dragged on for weeks. An Edison official, asking that his name be withheld, acknowledged yesterday that an end to the rate freeze is an expected result of the power- line sale. "Once the details of the pact are complete, dominoes will fall," the official said. "One of the dominoes is the rate freeze." A PG&E spokesman declined to comment. In fact, both Edison and PG&E have been aggressively seeking an end to the rate freeze for months. The two utilities have a lawsuit pending in federal court demanding that the PUC immediately raise rates so the utilities can recover almost $13 billion in debt accrued as a result of the freeze. "They have been trying a lot of things to get the rate freeze ended in various forms," said Carl Wood, who sits on the PUC. "Adding it to the present talks is consistent with past behavior." Wall Street has taken note that the negotiations no longer appear to be making progress. Paul Patterson, an energy industry analyst at Credit Suisse First Boston, told clients on Monday that the discussions "may have lost some momentum in recent days." He did not give a reason. For his part, the governor sounded unusually cautious about the course of the talks when asked late last week if a breakthrough was imminent. SECRET STICKING POINTS "We are going to take the transmission systems and the land that's deeded, and we will work out an agreement," Davis said at an appearance in San Jose. "But there are a number of sticking points in the talks with PG&E that I'm not going to reveal." One of those sticking points apparently is an insistence that the sale of utility assets include a long-sought lifting of the rate freeze. Sources said lawyers from both PG&E and Edison had inserted the related terms into draft accords affecting each utility, and that the full impact of the additions was not realized by state officials until this week. One source said the language was just convoluted enough to slip beneath the radar screen of state negotiators. But the upshot, once the words had been parsed, was that the PUC effectively would lose control over power rates. CREDITWORTHINESS ON THE TABLE In Edison's case, the terms of the tentative deal include the governor asking the PUC "to support the creditworthiness" of the utility. "This would ensure that future investments in both utility distribution and utility generation plants are provided fair returns of and on capital, consistent with current authorized returns and capital structure provisions," it says. Sources said the provision could be interpreted as a guarantee from the state that Edison would be permitted to recoup all outstanding costs from ratepayers. "There may be some assumptions about this language that the rate freeze ends if it is adopted," the Edison official said, adding that he saw no reason to disagree with such assumptions. But Fichera, Davis' adviser in the talks, insisted that nothing is set in stone, and that the negotiations are proceeding without a hitch. "This is a very complex transaction," he said. "God and the devil are in the details." E-mail David Lazarus at dlazarus@sfchronicle.com. ,2001 San Francisco Chronicle ? Page?A - 1