Message-ID: <24662859.1075851620346.JavaMail.evans@thyme>
Date: Mon, 1 Oct 2001 17:21:25 -0700 (PDT)
From: jeff.dasovich@enron.com
To: drothrock@cmta.net
Subject: FW: CPUC Press Conference -- Lynch announces will vote against the
 DWR Rate agreement
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SUMMARY OF THE DRAFT RATE AGREEMENT BETWEEN THE PUC AND DWR


The Bond Structure
? Keeps the state in the power selling business for 15 years - the life of
the bonds - because the bonds are repaid solely from the state's power
purchase revenues and no other repayment source.
? Designed as a "net revenue bond," meaning bondholders are paid last and
all other DWR costs and expenses are paid first.  In order to sell net
revenue bonds, DWR must show that it has guaranteed revenues to both: (1)
carry out its entire operations and (2) generate enough profit to pay off
the bonds.  As a result, the rating of a net revenue bond depends on the
overall financial health of the company - in this case, a guarantee that the
overall power purchase program instituted by DWR will be paid for by
ratepayers for 15 years.
? Requires that California's current energy policies and programs are set in
place and not subject to further political or policy changes for at least
the next 15 years and that the continued operation of this program will
generate enough income to meet all the program's possible financial needs
for the life of the bonds.  
? Ratepayers will pay for the state's power purchase program as long as the
bonds are outstanding.


The Rate Agreement
? Requires the Commission to adjust rates in 45 to 90 days when DWR sends
over a revenue requirement.  The Commission is limited only to correcting
mathematical error or costs outside the agreement's scope.  If the
Commission does not adjust rates according to DWR's estimated revenue
calculations, the Bond Trustee may enforce bondholders' rights to have rates
established at a level that satisfies DWR.
? May require the Commission to require all utilities to take DWR's power
and deliver it to customers in their service territories before the
utilities sell their own, often lower cost power to customers in each
service territory. 
? Precludes utilities from returning to the business of providing 100% of
their customers' electricity needs for the life of the bonds because the
state must stay in the business of buying and selling power to meet the
requirements of a net revenue bond.  Guarantees DWR receives whatever
revenue it needs for all of its power programs and establishes the State in
the power business for at least 15 years, the life of the bonds.  
? Because the bonds can be repaid only from DWR sales, suggests the need to
change the Legislatively imposed mandate that DWR's program "sunset" at the
end of 2002.   Already, the financial community has expressed concern about
this provision.  In response, DWR's comments on the Rate Agreement suggested
that an extension of the sunset by Executive Order could allow DWR to
continue purchasing power in a way that would be funded through
Commission-approved revenue requirements.
? Provides generators, who negotiated long-term contracts with the state
during the very height of the energy crisis when market power was being
exercised, irrevocable 15-year assurances that those power purchase deals
will be treated as solidly as if they were loans from the generators to the
State.
? Interferes with Federal or other court efforts to review the long-term
contracts entered into by the state.  Because the existence of those
contracts is essential to the continuation of the bond deal, the state would
not be able to take advantage of any change in circumstance or law that
would reduce dependence on disadvantageous long-term contracts.
? The Commission must also enforce rules so that utilities can bill and
collect on DWR's behalf, and customers are subject to disconnection for
failure to pay for electricity provided by DWR.
? Constitutes irrevocable financing document - the Commission may not alter
or modify any of its provisions without DWR's agreement.  DWR will likely
need to obtain bondholder approval before agreeing to any changes.  Remains
in effect as long as the bonds are outstanding, regardless of how many bonds
are issued.   


The Challenges to the Rate Agreement
? Eleven parties filed comments opposed to the Rate Agreement.
? Received comments in support only from DWR, the office of the State
Treasurer, and the investment bank underwriting the bond transaction.
? Received strong opposition citing numerous flaws with the rate agreement,
including:
	o The Commission cannot make the iron-clad guarantee to meet DWR's
revenue requirement 
	o Unconstitutional, contrary to general principles of utilities law,
and outside the scope of AB 1X, the statute that allows DWR to buy power  
	o DWR has acted illegally and the Commission's actions are illegal
because they rely on allegedly improper conduct on the part of DWR
Oppose the requirement that the Commission must ensure that DWR has the
physical ability to stay in business using the utilities distribution
networks.