Message-ID: <2503675.1075848232470.JavaMail.evans@thyme> Date: Tue, 29 May 2001 04:31:00 -0700 (PDT) From: kristin.walsh@enron.com To: john.lavorato@enron.com, louise.kitchen@enron.com Subject: California Update 5/29/01 Cc: christopher.calger@enron.com, christian.yoder@enron.com, steve.hall@enron.com, mike.swerzbin@enron.com, phillip.allen@enron.com, tim.belden@enron.com, jeff.dasovich@enron.com, chris.gaskill@enron.com, mike.grigsby@enron.com, tim.heizenrader@enron.com, vince.kaminski@enron.com, steven.kean@enron.com, rob.milnthorp@enron.com, kevin.presto@enron.com, claudio.ribeiro@enron.com, richard.shapiro@enron.com, james.steffes@enron.com, mark.tawney@enron.com, scott.tholan@enron.com, britt.whitman@enron.com, lloyd.will@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: 7bit Bcc: christopher.calger@enron.com, christian.yoder@enron.com, steve.hall@enron.com, mike.swerzbin@enron.com, phillip.allen@enron.com, tim.belden@enron.com, jeff.dasovich@enron.com, chris.gaskill@enron.com, mike.grigsby@enron.com, tim.heizenrader@enron.com, vince.kaminski@enron.com, steven.kean@enron.com, rob.milnthorp@enron.com, kevin.presto@enron.com, claudio.ribeiro@enron.com, richard.shapiro@enron.com, james.steffes@enron.com, mark.tawney@enron.com, scott.tholan@enron.com, britt.whitman@enron.com, lloyd.will@enron.com X-From: Kristin Walsh X-To: John J Lavorato, Louise Kitchen X-cc: Christopher F Calger, Christian Yoder, Steve C Hall, Mike Swerzbin, Phillip K Allen, Tim Belden, Jeff Dasovich, Chris Gaskill, Mike Grigsby, Tim Heizenrader, Vince J Kaminski, Steven J Kean, Rob Milnthorp, Kevin M Presto, Claudio Ribeiro, Richard Shapiro, James D Steffes, Mark Tawney, Scott Tholan, Britt Whitman, Lloyd Will X-bcc: X-Folder: \Steven_Kean_June2001_5\Notes Folders\Notes inbox X-Origin: KEAN-S X-FileName: skean.nsf Executive Summary ? California Treasurer Angelides Sets Dates for Bridge Loans & Bonds ? California's Supreme Court May See Challenge to "Plan B" Angelides on Bridge Loans and Bonds CA Treasurer Angelides has said that beginning 15 August, the state will set up a bridge loan. The revenue bonds will not be issued until September or October. Angelides is not concerned about a cash crisis in July or August. However, he is quite worried about problems with cash flow in October and November. This is based on calculations he has done with numbers from the DWR and from other parts of the government, not on payment terms for power. He fears there will be a cash management problem. California Supreme Court to Challenge "Plan B" California Attorney Michael Sturmwasser is expected to challenge "Plan B" before the California Supreme Court on the basis that it results in a retroactive rate increase and that it removes the PUC's authority to review power purchases. This is because "Plan B" enables SoCal to collect a dedicated rate component to pay both its undercollect and its expenses going forward. SoCal (and PG&E) would have to be guaranteed this dedicated rate component to be able to operate going forward and remain credit-worthy. This takes the burden of financing the energy crisis away from the state and off the state's balance sheet, a key goal of lawmakers. However, at the same time, it also abrogates the PUC from its responsibility to review power purchases. The state cannot give the utilities a blank check (in the form of a dedicated rate component) to operate without taking authority away from the PUC. According to the California constitution, the legislature can add to the responsibilities of the PUC, but it cannot take away powers from the PUC. At the same time, ratepayers will be paying an additional surcharge for power that they have already used. Sources describe Sturmwasser's case as "arguable"; in other words, it has a fair chance of succeeding. However, regardless of whether the challenge succeeds or fails, it is very likely to cloud the issue of the bail-out and significantly deflate the prospects of the Plan B. If FERC were to impose cost-based controls on power prices, sources believe it might "go a long way toward avoiding these problems." Were this to happen, the PUC could declare FERC's rates "just and reasonable," which would likely greatly lessen the crisis and keep SoCal liquid. However, such measures by FERC require significant lead time. Sources state that "the state needs to tease the feds into doing this." This can be done by conducting studies to obtain current cost data and update the data FERC would use for determining the cost controls. Sources report that this process of "teasing" FERC has not yet started. This is chiefly because California politicians are focused on flat price caps, which FERC is very unlikely to impose. It appears the state is asking FERC for the wrong measures, which is delaying the process. The only way for the state to avoid these constitutional issues would be for the state to purchase the utilities, as municipal entities would not be subject to PUC regulation. However, there remains very significant opposition to this idea, especially on the Republican side. A state purchase of the utilities would likely only gain momentum once Plan B began to fail for the reasons cited above. Additionally, a state purchase of the utilities would be less expensive were both utilities in bankruptcy. Sturmwasser is a partner at Sturmwasser & Woocher, a Santa Monica law firm. (His offices are on the top floor of the tallest building in Santa Monica, overlooking the beach.) He has been a utilities lawyer for over 30 years. His clients include the consumer advocacy group TURN (Toward Utilities Rate Normalcy), among others. Sturmwasser will reportedly look for funding to support the legal challenge, but if he cannot find money elsewhere, he will likely be able to support it out of his own pocket.