Subject: California 7/31
From: [email-masked]
To: [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]
Date: Tue, 31 Jul 2001 15:31:57 -0700 (PDT)

The train wreck known as California utility crisis continues along.  Democrats are turning on one another in the aftermath of the Assembly's failure to pass a SoCal bailout plan.  Meanwhile, talk of direct access is threatening to undercut the PUC's ability to hike rates, Davis' plans to issue bonds for a SoCal bailout, and the California state budget.

RJ

1.	Bryson and Davis Moving To Unseat Burton

There is a serious effort currently underway in California to unseat Senator Burton (D-San Francisco), President Pro Tem.   Even though the chances of this happening are relatively low, John Bryson, CEO of SoCal, with the support of the Governor, are making huge efforts to oust Burton and replace him with one of two potential candidates - Richard Alarcon (D-San Fernando Valley), Majority Whip or Sheila Kuehl (D-Los Angeles).  Alarcon has already stated that he would not accept the position.  However, at minimum, Bryson, Governor Davis and/or other Senators hope that Burton will rethink his position on the MOU and a SoCal bailout.

2.	Direct Access Talk a Serious Problem for SoCal and California Budget

Additionally, behind the scenes, things are looking very grim for California due the implications of Direct Access.  "Direct access," or the right of large companies and municipalities to buy power directly in the wholesale market, is fast emerging as a new and serious issue that could make a rescue of SoCal more difficult. It could also complicate existing state plans for the California electricity market and the proposed municipal bond sale, well placed Sacramento sources tell us. 
The biggest opponent of Direct Access comes from the Governor's office as they realize the potential effects of direct access and how it could undermine the revenue stream supporting the bond issuance for SoCal.

For those interested in more on Direct Access keep reading:

Trying to stop municipalities from opting out of the state power plans will be extremely difficult, as it runs against some of the most entrenched and long-standing privileges in California politics. Under California law, it is very difficult to stop many cities doing what they please. Most older and larger cities are "charter cities" rather than "general law cities" subject to the California Municipal code. Under the California Constitution, charter cities can "pretty much do anything or provide any service short of printing money and raising an army," says one source. The League of California cities - a weighty organization representing every one of California's cities - is already swinging into action to support direct access. Most Assembly Democrats started out as City councillors and have some sympathy with local independence. And the resistance within the Assembly is already building against Hertzberg's attempts to stop even large companies getting direct access. 

Some city leaders will not wish to fight the Governor and the state legislature on the issue. But if municipalities do not opt out, they may have to explain to their local business and voters why they are paying far more for electricity than a city next door which chooses to set up its own power company. Cities are beginning to realize they might potentially lose major employers. Politicians are also beginning to realize that local companies stand to gain or lose a fortune on the matter, and this could affect campaign contributions. 

State power plans at risk

If municipalities do move to set up their own power companies, it could undermine at least three key elements of the State of California's power plans: 
?	First, the rate hike already approved falls mostly on businesses and other large users. But municipal power would unpick this structure, allow large regions of California to ignore the PUC, leaving the rate structure to be determined city by city. Many municipalities may be unable to resist pressure from local businesses to protect them from disproportionate rate hikes. Others might cave into irate voters; 
?	Second, the plans laid out by Governor Davis' and State Treasurer Angelides' for a California State Public Power Authority would also be badly damaged if large regions avoid having anything to do with it. "It is possible that long-term power contracts might also face an additional hurdle if municipalities opt out of higher long-term rates by buying on the open market," one source says. "It could mean the state is left with excess power that it would have to sell at a loss;" 
?	Third, revenues to back the proposed power bonds could be imperilled, if municipalities opt out of the rate structure and revenue stream needed to repay the bond. And if the momentum for direct access develops among the cities and municipalities across the state, it could make it much more difficult to launch the bond in the first place as investors may take fright at potential threats to the viability of repayments. 

The issue is at an early stage -- the PUC had a general workshop on the matter at its offices in San Francisco on Friday. So far, the matter has been seen as a micro technical issue rather than as one of the biggest hurdles the state will have to face. State legislative leaders are likely to use every political and legal means available to stop municipal secession, or at least smother the issue until the power bond is successfully away. But stopping the municipalities if they choose to follow this path could prove to be difficult