Subject: California update 9-06-2001
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Date: Thu, 6 Sep 2001 15:28:26 -0700 (PDT)

For questions or comments regarding this report please contact G. Britt Whitman at ex:5-4014 or Kristin Walsh at ex:3-9510.

EXECUTIVE SUMMARY
Assembly's MOU Supporters "MIA," Vote Stalled  
Bailout Hang -Ups: Land, Bonds, and Referendum
SoCal Up for Grabs?

MOU Support Waning 
As of last night, Assemblyman Hertzberg reportedly had 25 votes in favor of the bailout that he could "count on."  There were 10 more votes that were "close" and stood a "reasonable chance" of being cast in favor of the bailout.  However, that still left Hertzberg 9 votes short of the 41 he needs.  Earlier today, Sen. Polanco, the bill's sponsor, privately indicated that the few remaining votes necessary to pass the amended SB 78XX were in place due to lobbying efforts by Gov. Davis.  No doubt the count will be close, but Hertzberg will only take the bill up in the Assembly for a vote today or tomorrow if he knows Democrats can muster enough support.    

The key issues related to getting the 41 votes to pass SB 78XX are the following: 
Including the option to buy the transmission lines.  For some this is a philosophical issue; these members are quite adamant that the option to buy the lines needs to be removed from SB 78XX.
Excess profits and creditworthiness - In particular how Edison can use any profits. 
The philosophy underlying the bill itself as to whether a bailout is necessary given the experience with PG&E.  And members are skittish about voting for a bailout with the possibility of a bankruptcy still possible anyway.

According to Assembly leadership sources, no Senator has asked the Speaker's Office for anything to be put in the bill (except for a Central Valley senator, Jim Costa, who played a party in brokering the deal on Shaver Lake).  Leadership sources were surprised by that, and believe that many senators will not hold to the Burton line of "don't even change a period in the bill."  Several senators including Polanco and Costa are vested in the bill's passage and will want to see it brought up for a vote despite significant opposition.  

Many people, including Polanco, believe that Burton may require his worker's compensation reform plan to be double-joined to the Edison MOU in order to take it up for a vote.  Double joining is a legislative maneuver that ties the fate of both bills together.  It creates a situation where both must be passed by the legislature and signed by the Governor in order to go into effect.  If the Governor only signs one, neither becomes law.  But the Governor's office has told us that Burton made a direct statement to them last week that he had no intention to double join workers comp reform to SB 78xx.  

Some suggest that Senate opposition lead by Burton (which remains considerable) may introduce a new bailout bill if SB 78XX passes the Assembly.  This new bill would be designed to be unacceptable to the Assembly.  The Senate then would pass this bill on the last day of the session, and then adjourn without a conference committee.  The Assembly would then be left to accept or reject the Senate's bill without the possibility of amendments.  (This is somewhat similar to what the Senate did in July, only now the recess will be until next year.)

SoCal Bailout Barriers
Regarding media reports referencing Assemblyman Keely's deal with Davis to exempt 5,000-acres of the Shaver Lake area from the bill's conservation easements, the protesters representing Fresno feel that this is not good enough and they intend to pursue their lawsuit against the state regarding the easements.  These protestors (and the Republicans who represent them) felt that they had achieved compromise language in the bailout last week, but this language is now gone.  While the Shaver Lake amendments (and all conservation easement language) are again in the bill, we do not believe this will significantly interfere with the bill's passage.  Some Central Valley members voted in support of the bill despite the amendments, and there is only one Democrat, Dean Florez, who may vote against it because of them.

Some Senators also reportedly considering removing language from the bond portion of the bailout bill that makes the bonds "Harvey-proof" - that is, immune from a referendum by consumer advocates.  This language, which was previously used in the California rate reduction bonds, is structured such that California's credit could be compromised if the bonds are not repaid (this is done by involving the California Infrastructure Bank as a party to the bonds).  Some members of the Senate who are in close contact with Harvey Rosenfield and the consumer advocates have expressed that they want to remove this language as a diplomatic way to destroy the bailout.  If the language is removed, there is no way that the state's credit is tied to the bonds.  This means that the bonds can be challenged by a voter referendum without endangering the state.  Current polls show that such a referendum, which would allow voters to choose not to pay the surcharge on power bills to bail out SoCal, would very likely succeed.  This would mean that the bonds could not be repaid.
 
Wall Street firms have stated expressly that they will not purchase the bonds if they are susceptible to a voter referendum, meaning that removing the "Harvey-proofing" language will likely mean that the bailout bonds will not be able to be sold.  SoCal is also aware of this possibility; if the language comes out of the bill, the plan will no longer be acceptable to SoCal.

SoCal: Selling Out or Going Under
There is word in Sacramento of companies "sniffing around" for a pre-packaged purchase of Edison after the bankruptcy occurs.  We will continue to investigate possible buyers and report when information becomes available.
 
It is also rumored that if an "inadequate" bill passes - i.e., one that will not return SoCal to creditworthiness - SoCal may declare voluntary bankruptcy, then use whatever bailout is passed as a revenue stream in bankruptcy.  The only requirement laid upon SoCal is to attempt to go back into the market by January 2003, and there is no penalty for them failing to do so.  There appears to be nothing in the bailout bill that would preclude them from using money from the bailout in bankruptcy.