Message-ID: <5515891.1075852652510.JavaMail.evans@thyme> Date: Tue, 10 Jul 2001 10:36:24 -0700 (PDT) From: mark.palmer@enron.com To: steven.kean@enron.com, richard.shapiro@enron.com, james.steffes@enron.com, kenneth.lay@enron.com, jeff.skilling@enron.com, pat.shortridge@enron.com Subject: Great editorial Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: Palmer, Mark X-To: Kean, Steven , Shapiro, Richard , Steffes, James , Lay, Kenneth , Skilling, Jeff , Shortridge, Pat X-cc: X-bcc: X-Folder: \JSKILLIN (Non-Privileged)\Deleted Items X-Origin: Skilling-J X-FileName: JSKILLIN (Non-Privileged).pst Here's an editorial that gets to the heart of the matter. =20 Tuesday, July 10, 2001 Ghost of Bob Citron roaming halls of capitol = Gray Davis is following footsteps of former O.C. treasurer into fiscal cha= os JOHN M.W. MOORLACH Mr. Moorlach is the Orange County treasurer-tax = collector. A recent L.A. Times poll found that Californians still remain = unconvinced that our state suffers from a shortage of energy. Perhaps the s= tate's subsidizing of the actual costs for electricity these past five mont= hs has caused us to believe that everything is fine. It is not. The state = has been spending an average of $57 million, a medium-sized city's annual b= udget, per day for electricity. Now California is headed toward the same fi= nancial catastrophe that was imposed on its shareholder-owned utilities, fi= nding one of them in Chapter 11 bankruptcy and another on the precipice. At= this pace, it will not be long before the state will be staring a Chapter = 9 bankruptcy filing in the face. That's why I'm gnawed by this "d?j? vu" s= ensation. The similarities and parallels between California of 2001 and Ora= nge County of 1994 are frightening. Here's a refresher. In 1994 the county,= through former Treasurer Robert Citron, was borrowing at variable rates an= d investing at fixed rates. The "experts" and the "politicos" were comforta= ble with the investment scheme. No wonder the electorate was convinced tha= t there were no investing improprieties. Even while their former treasurer = was very secretive about how he was investing and what his "exit strategy" = would be. Guess what? The unexpected happened. Short-term borrowing rates d= oubled. The cost of borrowing suddenly exceeded the revenues being generate= d. It caused the investment pool to implode and Orange County taxpayers re= alized a $1.64 billion loss. In spite of pleas to avoid or minimize this tr= ain wreck the county's leadership, he ignored it. The rest is history. In a= half-pregnant deregulation scheme, the state capped the retail price that = the utilities can charge. It also eliminated the availability to acquire el= ectricity through the use of long-term contracts. Guess what? The unexpect= ed happened. The wholesale price for electricity spiked dramatically above = the inflexible retail price cap. It depleted the available funds for the ut= ilities, and then some, and they are imploding. In spite of pleas from the = utilities imploring Gov. Gray Davis to avoid or minimize this train wreck, = he ignored them. The rest is also history. It gets worse. Davis doesn't al= low for the immediate raising of retail rates and decides to have the state= secretly purchase electricity. Guess what? The expected happened. He deple= ted our budget surplus! Our reserves! Nearly $9 billion - and counting! He'= s a Citron, only quintupled! And in the light of day, the secret purchases= were not attractively priced and only compound this financial nightmare. G= ov. Davis has done what no Libertarian or Republican could ever dream of do= ing in such a short time. He has returned the budget surplus created by tax= payers to the residents of California by subsidizing their electricity bill= s. Bravo! It may not be the most equitable way of refunding taxes, but has= anyone ever thought up a more efficient method? But, that's not all. He wa= nts it back! Davis now wants to borrow some $13 billion to replace the spen= t reserves and purchase even more electricity at rates in excess of the ret= ail prices! When does this train wreck in slow motion stop? And how do we = pay off these bonds? Davis did not want to raise rates last summer or this = past winter. But now he will to pay off this historically largest municipal= bond offering with a significant utility rate increase. The ratepayers wil= l be reminded for 10 years after Davis is gone about his expensive brillian= ce. And this elected official wants to purchase the power grids and bureauc= ratically manage the utilities? I say "no." If we don't show some leadersh= ip in Sacramento soon, potential bond buyers will also say "no," unless the= y receive an attractive interest rate. Just ask Edison International about = attractive interest rates. It just subscribed $800 million in bonds paying = 14 percent. Tragically, Gov. Davis walked into his position with an existin= g budget surplus and now has no tangible legacy to show for it. No reserves= . No improved highways. No new schools. No infrastructure improvements. Onl= y interest payments. Wasn't that Citron's legacy? If amortized over 10 yea= rs at 6 percent, the citizens of California will pay an additional $4.4 bil= lion in interest costs. Over 15 years it's $6.7 billion. And therein lies t= he true legacy of Davis, squandering the entire budget surplus that he inhe= rited on interest resulting from his indecisiveness and lack of leadership!= It is so tragic that the perpetrator of this colossal mess is still in de= nial and continues to play the "blame game." Orange County played the "blam= e game," too. But it had obvious perpetrators and succeeded in a court of l= aw in securing a significant amount in retribution payments. I'm not so sur= e California will have a similar result. =09