Message-ID: <33489531.1075855378332.JavaMail.evans@thyme>
Date: Mon, 7 May 2001 11:54:00 -0700 (PDT)
From: phillip.allen@enron.com
To: keith.holst@enron.com
Subject: California Update 5/4/01
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---------------------- Forwarded by Phillip K Allen/HOU/ECT on 05/07/2001 0=
6:54 AM ---------------------------
From:=09Kristin Walsh/ENRON@enronXgate on 05/04/2001 04:32 PM CDT
To:=09John J Lavorato/ENRON@enronXgate, Louise Kitchen/HOU/ECT@ECT
cc:=09Phillip K Allen/HOU/ECT@ECT, Tim Belden/ENRON@enronXgate, Jeff Dasovi=
ch/NA/Enron@Enron, Chris Gaskill/ENRON@enronXgate, Mike Grigsby/HOU/ECT@ECT=
, Tim Heizenrader/ENRON@enronXgate, Vince J Kaminski/HOU/ECT@ECT, Steven J =
Kean/NA/Enron@Enron, Rob Milnthorp/CAL/ECT@ECT, Kevin M Presto/HOU/ECT@ECT,=
 Claudio Ribeiro/ENRON@enronXgate, Richard Shapiro/NA/Enron@Enron, James D =
Steffes/NA/Enron@Enron, Mark Tawney/ENRON@enronXgate, Scott Tholan/ENRON@en=
ronXgate, Britt Whitman/ENRON@enronXgate, Lloyd Will/HOU/ECT@ECT=20
Subject:=09California Update 5/4/01

If you have any questions, please contact Kristin Walsh at (713) 853-9510.

Bridge Loan Financing Bills May Not Meet Their May 8th Deadline Due to Lack=
 of Support
Sources report there will not be a vote regarding the authorization for the=
 bond issuance/bridge loan by the May 8th deadline.   Any possibility for a=
 deal has reportedly fallen apart.  According to sources, both the Republic=
ans and Democratic caucuses are turning against Davis.  The Democratic cauc=
us is reportedly "unwilling to fight" for Davis.  Many legislative Republic=
ans and Democrats reportedly do not trust Davis and express concern that, o=
nce the bonds are issued to replenish the General Fund, Davis would "double=
 dip" into the fund.  Clearly there is a lack of good faith between the leg=
islature and the governor.  However, it is believed once Davis discloses th=
e details of the power contracts negotiated, a bond issuance will take plac=
e.  Additionally, some generator sources have reported that some of the lon=
g-term power contracts (as opposed to those still in development) require t=
hat the bond issuance happen by July 1, 2001.  If not, the state may be in =
breach of contract.  Sources state that if the legislature does not pass th=
e bridge loan legislation by May 8th, having a bond issuance by July 1st wi=
ll be very difficult.

The Republicans were planning to offer an alternative plan whereby the stat=
e would "eat" the $5 billion cost of power spent to date out of the General=
 Fund, thereby decreasing the amount of the bond issuance to approximately =
$8 billion.  However, the reportedly now are not  going to offer even this =
concession.  Sources report that the Republicans intend to hold out for ful=
l disclosure of the governor's plan for handling the crisis, including the =
details and terms of all long-term contracts he has negotiated, before they=
 will support the bond issuance to go forward.

Currently there are two bills dealing  with the bridge  loan; AB 8X and AB =
31X.  AB 8X authorizes the DWR to sell up to $10 billion in bonds.  This bi=
ll passed the Senate in March, but has stalled in the Assembly due to a lac=
k of Republican support.  AB 31X deals with energy conservation programs fo=
r community college districts.  However, sources report this bill may be am=
ended to include language relevant to the bond sale by Senator Bowen, curre=
ntly in AB 8X.  Senator  Bowen's language states that the state should get =
paid before the utilities from rate payments (which, if passed, would be li=
kely to cause a SoCal  bankruptcy).=20
=20
According to sources close to the Republicans in  the legislature, Republic=
ans do not believe there should be a bridge loan due to money available in =
the General Fund.  For instance, Tony  Strickland has stated that only 1/2 =
of the bonds (or approximately $5 billion)  should be issued.  Other Republ=
icans reportedly do not support issuing any  bonds.  The Republicans intend=
 to bring this up in debate on  Monday.  Additionally, Lehman Brothers repo=
rtedly also feels that a  bridge loan is unnecessary and there are some ind=
ications that Lehman may  back out of the bridge loan.
=20
Key Points of the Bridge Financing
Initial Loan Amount:=09$4.125 B
Lenders:=09=09JP Morgan=09=09$2.5 B
=09=09=09Lehman Brothers=09=09$1.0 B
=09=09=09Bear Stearns=09=09$625 M
Tax Exempt Portion:=09Of the $4.125 B; $1.6 B is expected to be tax-exempt
Projected Interest Rate:=09Taxable Rate=09=095.77%
=09=09=09Tax-Exempt Rate=09=094.77%
Current Projected=20
Blended IR:=09=095.38%
Maturity Date:=09=09August 29, 2001
For more details please contact me at (713) 853-9510

Bill SB 6X Passed the Senate Yesterday, but Little Can be Done at This Time
The Senate passed SB 6X yesterday, which authorizes $5  billion to create t=
he California Consumer Power and Conservation  Authority.    The $5 billion=
 authorized under SB 6X is not the  same as the $5 billion that must be aut=
horized by the legislature to pay for  power already purchased, or the addi=
tional amount of bonds that must be authorized to pay for purchasing power =
going forward.  Again, the Republicans are not in support of these authoriz=
ations.  Without the details of the long-term power contracts the governor =
has  negotiated, the Republicans do not know what the final bond amount is =
that must  be issued and that taxpayers will have to pay to support.   No f=
urther action can be taken regarding the implementation of  SB 6X until it =
is clarified how and when the state and the utilities get paid  for purchas=
ing power.    Also, there is no staff, defined purpose, etc. for  the Calif=
ornia Public Power and Conservation Authority.  However, this can  be consi=
dered a victory for consumer advocates, who began promoting this idea  earl=
ier in the crisis.
=20
SoCal Edison and Bankruptcy
At this point, two events would be likely to trigger a SoCal bankruptcy.  T=
he first would be a legislative rejection of the MOU between SoCal and the =
governor.  The specified deadline for legislative approval of the MOU is Au=
gust 15th, however, some decision will likely be made earlier.  According t=
o sources, the state has yet to sign the MOU with SoCal, though SoCal has s=
igned it.  The Republicans are against the MOU in its current form and Davi=
s and the Senate lack the votes needed to pass.  If the legislature indicat=
es that it will not pas the MOU, SoCal would likely file for voluntary bank=
ruptcy (or its creditor - involuntary) due to the lack operating cash. =20

The second likely triggering event, which is linked directly to the bond is=
suance, would be an effort by Senator Bowen to amend SB 31X (bridge loan) s=
tating that the DWR would received 100% of its payments from ratepayers, th=
en the utilities would receive the residual amount.  In other words, the st=
ate will get paid before the utilities.  If this language is included and p=
assed by the legislature, it appears likely that SoCal will likely file for=
 bankruptcy.  SoCal is urging the legislature to pay both the utilities and=
 the DWR proportionately from rate payments.

