Subject: California Update 2/20/01
From: [email-masked]
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Date: Tue, 20 Feb 2001 19:26:00 -0800 (PST)

Bankruptcy
	
Today, California Energy Operating Corporation sued Southern California Edison seeking payment for November and December power sales, totalling $45M. This move is likely a sign of things to come.  It shows that generators do not believe that there will be a viable solution from the governor.   CalEnergy is positioning themselves as a primary creditor.   Past experience dictates that lawsuits are often used as a means of communication in bankruptcy situations.  In the case of a judgement in CalEnergy's favor, CalEnergy would be able to seize Edison's bank assets assuming there is no bankruptcy in the meantime.  It is another strategy for getting paid without actually filing an involuntary bankruptcy.  However, if there are enough of these suits or if Edison ignores a judgement in CalEnergy's favor, it will very likely be enough to trigger an involuntary bankruptcy filing, followed closely by a voluntary filing.  The generators are stating that they will not subscribe to any deal until their past bills are paid.  There currently is no arrangement to pay the generators for power they are supplying to the ISO.  Thus, the generators are beginning to see the utilities and the state as one and the same.

The governor is reportedly trying to come up with a plan that will result in the lowest possible rate increase in order to minimize the public's reaction.  The governor has stated that he will put a plan in place in accordance with the "existing rate structure."  According to Rosenfield, he is considering a 19% rate increase.  This number was arrived at by combining the 9% temporary, emergency increase passed by the PUC and a 10% rate reduction imposed by the legislature under bill AB 1890 that is scheduled to expire next month.  This increase would be put in place for as long as necessary to pay back the utilities' debt.  This plan contrasts enacting a 30% or 40% rate increase over a period of a few years.  A lower increase over a longer period of time, coupled with the financing charges over that same period, is likely to have a detrimental effect on the California economy in comparison to its neighbors.

Consumer Advocacy Group

The consumer groups continue to insist that the generators give something up as part of any deal.  According to a source close to Harvey Rosenfield, head of a leading consumer advocacy group in California, Rosenfield feels the longer it takes the governor to flesh out a deal with the utilities, the lower the price offered for the transmission assets will be.  This is due to public pressure on elected officials not to enter into a bailout agreement; the pressure will only increase as time passes