Subject: RE: California Update--08.09.01
From: [email-masked]
To: [email-masked]
Cc: [email-masked]
Date: Fri, 10 Aug 2001 06:14:57 -0700 (PDT)

thanks for the update.  as usual, it is very useful.  could you please add jeff richter to this distribution.  jeff is now responsible for the managing the ees risk positions in the west.  naturally, this information is pertinent to him.

tim

 -----Original Message-----
From: 	Dasovich, Jeff  
Sent:	Thursday, August 09, 2001 5:27 PM
To:	Delainey, David; Whalley, Greg; Dietrich, Janet; Kitchen, Louise; Lavorato, John; Belden, Tim; Calger, Christopher F.; Parquet, David; Robertson, Linda; Blachman, Jeremy; Sunde, Marty; Curry, Wanda; Tribolet, Michael; Kean, Steven J.; Shapiro, Richard; Kaufman, Paul; Mara, Susan; Kingerski, Harry; Comnes, Alan; Denne, Karen; Palmer, Mark A. (PR); Mellencamp, Lisa; Sharp, Vicki
Subject:	California Update--08.09.01

THE LEGISLATURE
No material change from the last update.  
The Legislature is in recess and the two bills that passed the Senate--SB 78 and SB 18--continue to sit in the Assembly, waiting for the Assembly to return on August 20th.
Support for the two bills in Assembly is currently very weak.
A handful of Democratic Assembly legislators and staff have been meeting over the recess to determine whether they can 1) reach agreement on the bill that the Assembly's been working on (AB 82), and 2) reach agreement with the Democrats in the Senate.
We will distribute the output of those meetings as soon as it is available.
The key features of SB 78 would: 
allow Edison to recover $2.5 of the $3.5 B of payables. 
earmark the $2.5 B to pay the banks and the QFs.  
leave Edison to figure out how to cover the remaining $1B in payables to suppliers (including Enron).
single out the largest business customers to pay for 100% of the $2.5 B in payables.
give the State the option to buy Edison's transmission assets at book.
do nothing to ensure Direct Access is maintained.
The key features of AB 82 would:
maintain a week form of Direct Access, though the bill doesn't go nearly far enough with respect to DA.
adopt some of SB 78's the onerous features (e.g., no authorization to pay back suppliers; force the biggest business customers to pay down Edison's debt to the banks and QFs).
The key features of SB 18 would:
restructure the way in which the upcoming bond issuance is financed by creating a "dedicated utility rate component" (i.e., a fixed charge) to service the bonds.
de-link payments to suppliers holding DWR contracts from payments to service the bonds to pay back the General Fund.
allow the PUC to hold a public hearing on DWR's contracts.

A consortium of small and large businesses and business associations sent a strongly worded letter today to Davis and all members of the CA Legislature expressing extreme opposition to both 78 and 82.  I have a copy of the letter and will distribute to anyone who would like to see it.
In the same letter, the business consortium strongly supports SB 18 because they fear they will get stuck with any out-of-the-money DWR contracts.
The consortium is lobbying hard to have the DWR contracts nullified or re-negotiated.
The Treasurer and the Governor oppose SB 18 because they believe 1) it would constitute contract breach, and 2) the contract provisions require the state to pay the present value of the contract plus LD in the event of a breach.
Calpine, who holds about 50% of the DWR contract volume, is also opposed to SB 18.
Opposition to any form of "Edison bailout" is increasing among policy makers, opinion leaders and the press
There is currently a 50-50 or better chance that the Legislature will NOT pass an Edison MOU before the session ends, though that could change.

THE CALIFORNIA PUC
Since the legislature has failed to pass comprehensive legislation addressing CA's crisis, the issues now revert back to the PUC.
In particular, the PUC is slated to rule on August 23rd on whether Direct Access should be suspended.
The Treasurer has said that DA must be suspended in order to remove any risk that DA might create with respect to impairing the revenue stream necessary to service the bonds.
AB 1X, the law that authorized DWR to buy power, gives the PUC the authority to suspend Direct Access.
Enron is leading a large group of customers and suppliers in an effort to stop the PUC from suspending Direct Access.
The group is writing a letter to Davis, the PUC, the Treasurer, DWR and the Legislature urging them to maintain Direct Access.
That letter should be released Friday or Monday.
The group is also making a submission to the PUC as early as Monday to provide the Commission with practical alternatives that would permit the the PUC to maintain Direct Access.
The group is also mounting a PR campaign that it wil launch simultaneously with the release of the letter and the submission to the PUC.
Currently, the chances that the PUC will suspend Direct Access on the 23rd is better than 50 percent, but a considerable effort is underway to reverse the situation.

If you have any questions, don't hesitate to contact me at 415.782.7822. If I've missed anyone, please forward along.		

Best,
Jeff