Subject: California Update p.2; 5/29/01
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Date: Tue, 29 May 2001 07:47:00 -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).