Subject: POTENTIAL CALIFORNIA SOLUTION
From: [email-masked]
To: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Cc: [email-masked], [email-masked]
Date: Wed, 10 Jan 2001 12:58:00 -0800 (PST)

As most of you know, in a last ditch attempt, we are trying to develop a 
complete "solution" to the California problems that can be presented in the 
Sec of Treasury discussions.  It would be very helpful if people would 
comment or provide analysis on the likelihood of the following settlement 
points:  

1. Long-Term Contracting
key need of CA is NEW POWER PLANTS - KEY MESSAGE - AND IT'S IN CALIFORNIA'S 
AUTHORITY TO DELIVER
Live Auction conducted by DEALBENCH
auction should be focused on "build" economics
parties bid ($/Mwh) for the right to deliver 500+ MW (the right size needs to 
be determined) into Cal ISO control area for 5 years and the winning bidder 
obtains a pre-approved generation site in California (with all permits, 
siting obligations, and interconnection - BIG ISSUE) to build starting within 
2 months
focusing on just delivered energy without generation site is difficult to 
price (market too illiquid)
keep the number of auctions to a minimum (probably 6 - 10) for each utility
Counterparty is State of California (some agency)
maybe structure the bids to be 50-50 baseload vs. peaking

2. Utility Retail Ratemaking
per RELIANT ENERGY model, need $85/Mwh on average to work within retail 
framework (how much would rate increase does this create?)
goal must be to have EBITDA positive utilities, although long-term utilities 
should be EBITDA = $0 for generation sales
keep the current PX structure? 
Utilities may have to "eat" some of the current undercollection

3. Interim Credit Support
pro rata credit from all creditors (including banks and energy suppliers)
60 day forbearance (to allow the auction to occur)

4. Liability 
PG&E, SDG&E, and SCE agree not to sue any suppliers
State of California considers "taking" all civil cases and not pursuing
State of California agrees not to pursue any criminal cases

5. Other Actions
FERC agrees to immediate price cap lifting
FERC and California agree to complete non-stakeholder board for ISO
CPUC immediately finds that the result of the auction is "reasonable"

The key point is to (1) stop the current bleeding by getting long-term deals 
in place soon and (2) manage the rate shock.  We will be working three things 
(1) structure of the long-term auction, (2) rate model showing how high 
prices of long-term auction power can be, and (3) financial results for 
utilities under this outcome.

What else needs to be included in a settlement?

Jim