Subject: California Update 6/1/01
From: [email-masked]
To: [email-masked], [email-masked]
Cc: [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], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Date: Fri, 1 Jun 2001 07:38:00 -0700 (PDT)

Below are details of new plan currently being created by California State 
Treasurer Phil Angelides and supported by Sen. Burton.  The plan is in the 
initial stages and is not currently on any legislative fast-track.  It is 
also not motivated by a desire to save SoCal from bankruptcy.  The creator's 
goal is to give Californians more control over their energy and electric 
futures as well as giving the tax/rate payers a share of the pie in return 
for money that has/will go to the utilities.  We will continue to monitor 
this plan, its supporters and progress.

Plan Z
  California State Treasurer Phil Angelides and a powerful group of 
legislators are finally taking action and are developing a plan to solve 
California's energy crisis this summer.  The group is comprised of leftish 
legislators, environmental advocates, in-state energy company executives and 
business leaders and they are pulling together a Plan Z.  At the core of the 
plan is the recently passed authorization to erect a California Public Power 
Authority that issues bonds, constructs new power plants and buys up 
transmission lines.  There is even talk within this group of using newly 
legislated authority to buy SoCal Edison for $3.5 billion (less than it owes) 
although they would face huge obstacles and receive strong opposition from 
power companies as well as Edison itself.
  The five-year goal is to have enough power generation capacity to guarantee 
a 5%-15% "cushion" against energy peak demand.  Angelides and Burton want to 
create enough capacity to form a buyer's market.  One of the points of the 
plan is to replace private sector generation with more public sector 
generation.  This plan may short-circuit private sector plans to build new 
plants, but the state has the ability to issue $5B in revenue-backed bonds 
(in addition to the $12B rate-backed bonds).    The second key element in the 
Angelides-Burton Plan Z is additional rate hikes for California's consumers 
and businesses.  Although discussions are still underway between this group 
and business leaders, Angelides is wanting to propose an additional 45% 
increase in residential and commercial electricity rates, however, there is 
immense sympathy for loading a disproportionate share of the burden on 
businesses.   This increase is on top of the 50%-60% already mandated by 
previous PUC decisions this year.  These rate increases will do two things: 
stop the immediate fiscal drain on the state of California and prevent 
emergency tax hikes (being serious considered last week).  
  Issues to consider in regards to this plan are: (1) how much will current 
shareholders be diluted in return for helping the utilities repay long-owed 
debts (or what would they get if the state decided to buy up all of SoCal 
Edison); and (2) how much will creditors have to "eat" in the legislated 
repayment plan?   In other words how big will the equity and bond haircuts 
be?  There is no answer to these questions right now as legislators work to 
cobble together a plan with numbers that work without triggering a massive 
and politically destructive rebellion by voters next year.