Subject: California Update p.2; 5/29/01
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Date: Tue, 29 May 2001 12:47:30 -0700 (PDT)

EXECUTIVE SUMMARY
Senator Keeley Spearheads a New "Plan B"
State to Offer Little Aid in PG&E Bankruptcy

Keeley's Collective "Plan B"
Sources report that additional details for the Plan B have just been ironed out on the Assembly side.  The Assembly is working to announce a plan "as soon as possible"; this announcement could come this afternoon.  If it is not this afternoon, it will be later this week.   Sources Report the Republicans were working with Keeley, but then felt shut out of the process, so they developed a plan of their own (a lightly publicized point last week).  However, sources believe that the Plan B is very likely to have enough Republican support to pass the Assembly.  The Senate will likely be a much tougher fight, but opposition to the plan remains pessimistic that they will be able to stop it.  The Senate appears likely to broaden the base of people who would have to pay the dedicated rate component, which will be unpopular.  Borrowing from elements of the Joe Nation and Florez "Plan B's," Keeley's new plan is said to:
Set up a dedicated rate component for SoCal to deal with part of their undercollect.  This dedicated rate component would apply more to "high-end customers."  Where the line would be drawn between who would pay and who would not is still subject to negotiation.  The size of the dedicated rate component is also subject to negotiation.  SoCal has suggested $3M for 10 to 12 years.  Note, sources report that at this time, a dedicated rate component for SoCal to pay for power going forward is NOT included in the Plan B that will be announced.  The Assembly is not certain whether this additional dedicated rate component will be needed.  If the bond issuance is enough to cover the cost of power purchases, no dedicated rate component for forward purchases will be needed.  By 2003 and 2004, enough additional generation should be online that power prices should be low.  Therefore, the key question becomes what will be the cost of power in 2002?  If the cost of power is high, rates may have to be increased at that time for SoCal to continue operating.
The state would make a secured loan (secured against the transmission assets) to SoCal to pay back the remainder of the undercollect.  This loan would be paid back by SoCal granting the government a lower rate of return on the transmission system for a period of 10 to 15 years.  This provides an incentive for SoCal to sell its transmission system to the state, since it would not be making as much money from the system.  Were this to happen, the value would be credited toward the loan.
In return, the state would receive the withdrawal with prejudice of the filed rate doctrine case.  Also, SoCal would reduce the price of native power generation.  Finally, business customers (including those that would have to pay the dedicated rate component) would have the right to apply for direct access to power.
If this plan is passed, (better than 50/50 chance -as reported earlier) the constitutional challenge from Michael Sturmwasser is still likely to go forward.  This is because Sturmwasser is chiefly concerned with the fact that the plan results in a retroactive rate increase to pay SoCal's undercollect.  Sources believe it is likely that SoCal will eventually sell its transmission assets to the state if this plan is passed.  Therefore these assets would become municipal, making the reduction in the PUC's authority constitutional.

Legislature Leaves PG&E to Throws of Bankruptcy
Today, there have been discussions concerning PG&E regarding "Plan B" and the legislature.   Currently, the legislature is NOT considering offering Keeley's "Plan B" solution to PG&E.  If the Plan B mentioned above passes the Senate, it is more likely that the state will purchase PG&E out of bankruptcy.  Both the Assembly and the Senate leadership are talking seriously about purchasing PG&E out of bankruptcy, though the Republicans remain strongly opposed.  The state then, would likely sell off pieces of PG&E (except for the transmission assets, which it would retain).