Subject: California Update 3/22/01
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]
Date: Thu, 22 Mar 2001 19:40:00 -0800 (PST)

Executive Summary:

?	The as yet unnumbered rescue bill by Davis made it to the Senate floor
?	An exemption of the gas-fired QFs from this bill (as proposed by Sen. Keeley) could further forestall an involuntary bankruptcy filing.
?	If passed, the draft CPUC order would give the utilities another 15 days after rate hikes to pay the QFs
?	The negotiations with the QFs are complicated by the issue of payments owed by the utilities to the DWR. Senators are demanding that the utilities set up a trust fund from rate revenues to pay back the DWR. 
?	The CalEnergy ruling (as reported by Bloomberg this PM) is an attractive option for other QFs looking to at least temporarily escape long-term supply contracts with Edison.
?	If neither the CPUC nor the legislature exempts the gas-fired generators from the new rate structure, an immediate involuntary bankruptcy filing is expected.  However, if the exemption is implemented, then a bankruptcy filing would be delayed.

1.	"QF Bill" Makes it to Senate Floor

The "CPUC bill" (the number is not yet known) is in mock-up form and does the following:

*	Repeals PUC Code section 390, which set a formula for QFs under deregulation.
*	Amends portions of AB 1X which will ensure that DWR receives money for its power purchases, and includes provisions for the issuance of bonds.
*	Includes a provision for SDG&E rates since they were not covered under other legislation.

The bill passed the Senate Energy (8-2), and also just passed the Senate Appropriations Committee (8-2) and is headed to the Senate Floor.  

2.	Senator Comments on the Bill:

Keeley (author of bill) presented that the bill would allow the PUC to decide the QF contracts which is the proper authority  to debate the issue.

Most of the opposition to this portion of the bill was regarding the fact that the bill provides no guidance to the PUC regarding voided costs for natural gas-fired QFs.  Republicans offered an amendment to not have section 390 repealed for gas-fired generators, but Keeley had concerns with the amendment.  Keeley stated that he did not think they should limit the PUC's flexibility and that as drafted the amendment was too broad.  He also indicated that gas-fired utilities have a legitimate issue with the draft order.  He said that the PUC order needs to be amended, and Keeley is confident that the PUC has recognized that in discussion over the past 48 hours.

3.	Opponents to the QF Bill:

The following people testified in opposition to QF portion:  TURN, Delta Power (QF), Syke Energy, John Hancock Financial, California Manufacturers Association, Crockett Cogeneration, Independent Energy Producers, Clean Power Campaign, PG&E, SCE.

The gas-fired QFs that testified in opposition noted that they have been off-line for a couple of months and cannot come back on-line unless their issues are addressed.

In response to the QFs not getting paid, Sen. Bowen stated that if the utilities do not pay the QFs as directed under the draft order, then she would personally see to it that they go into bankruptcy.

4.	PG&E and SCE Testimony:

Sen. Battin asked both utilities about the draft order, which states that after the change in the rates by QFs the utilities must pay the QFs within 15 days, and whether the utilities would abide by the order.

PG&E's response was that they are receiving $400 million per month, the cost of their own generation is $100 million, and the QF amount is $240 million per month; the draft order would lower the QF cost to $140 million.   PG&E was cut off at this point and asked point blank whether their answer to Battin's question was "yes or no."  Battin, Bowen and Murray all asked
whether it was yes or no.  The PG&E rep stated that it would be "no" if the issue of the payments owed to ISO and DWR is not resolved.  If the ISO costs of purchases were included in the DWR payments, then PG&E would not have a problem.

The SCE response was that if the money coming in was less than the money going out, then it could not comply with the PUC order.

5. 	Payments to DWR

Senator Sher then asked both utilities regarding a requirement under AB 1X that the utilities set aside those moneys that are owed to the DWR for purchasing power that they collect from ratepayers in a trust fund those.  SCE responded that they are still in negotiations with DWR on the terms and conditions.  Several legislators responded angrily that this was not part of the bill, and that they should have a trust fund set up.  PG&E noted that they are setting 'some' money aside, but would not state how much. Sen. Sher ended the conversation by stating that if the utilities do not set up a trust fund by tomorrow they would either pass emergency legislation or 'go after them' for violating the law.

1X Provisions:

Tim Gage from Dept. of Finance noted the Governor's support of the entire bill, and noted that the 1X provisions would ensure that DWR gets paid.

PG&E also testified in opposition to these provisions.

Senator Bowen made the following statements:

*	Senator Peace has announced that he has received another notice of $500 million appropriation needed to purchase power and will not approve the funding unless PG&E and SCE drop their challenge to the PUC regarding the DWR issue.
*	Also stated that the PUC could always raise rates as a way to resolve the issue.