Subject: California Update 5/16/01
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]
Date: Wed, 16 May 2001 14:33:46 -0700 (PDT)

EXECUTIVE SUMMARY
Of the four "Plan Bs" introduced recently by California legislature, only two proposals appear viable for SoCal, and surprisingly, PG&E.  The others either establish vulture funds for when So Cal goes under, or propose new ways of funding the transmission line deal.  The California legislature's inability to identify an immediate solution has cued the media to limit the publicity of the lesser "plan Bs."
At this point, SoCal is interested in a making a deal.  Not only are they are the on the verge of bankruptcy, but (unlike PG&E) SoCal has also significantly exposed its parent company to bankruptcy by not taking the necessary steps to protect its assets.  As reported earlier with PG&E, we are monitoring all activities surrounding SoCal assets, which could signal imminent bankruptcy.

The Infamous "Plan B"
Four hours of debate and the absence of Republican representation on Tuesday night led members of the state Assembly's so-called "Plan B" group to decide backing only legislation introduced by Assemblymen Dean Florez and Joe Nation.  A previous proposal by Senate President Pro Tem John Burton that poised the state to purchase SoCal's transmission lines for $2.76B to service debt and left the Ca. PUC to determine SoCal's unrecovered power costs prior to bond issuance, didn't't win support.  As reported earlier, sources indicate that Davis MOU is likely to suffer a similar fate once introduced by Senator Polanco later this week. 

The Florez Plan
Florez's plan is currently under review in the Assembly Energy Committee.  The proposal allows PG&E to issue bonds secured by their assets and use the revenues to pay creditors.  The state would then assess a tax on the bond revenues aimed at servicing PG&E's debt with the CADWR.  Sources report one drawback to the plan is that PG&E bankruptcy Judge Montali would be required to authorize any such a transaction respective of other recommendations available to the court.  This may not be the most time-efficient course of action.  PG&E had shown signs of approval over similar plans in the months preceding their bankruptcy.  

The Nation Plan
Nation's plan allows SoCal. Ed to sell bonds backed by ratepayer revenues generated from state approved rate hikes.  Additionally, the state would hold a five-year option on buying the transmissions lines for book value (roughly $1.2B), as well as holding to the SoCal concessions previously mentioned in Davis' MOU.  The drawback to Nation's proposal is that SoCal creditors (including banks and generators) would have to collectively agree to take debt repayment at $0.75 on the dollar.  Sources report that some SoCal creditors favor attempts to recoup dollar for dollar in bankruptcy court over conceding to a "haircut."  SoCal. reportedly approves of Nation's plan sticking to the principals outlined in Davis' MOU.