Subject: California Update 6/1/01
From: [email-masked]
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Date: Fri, 1 Jun 2001 17:38:00 -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.