Message-ID: <2126685.1075858447205.JavaMail.evans@thyme>
Date: Fri, 1 Jun 2001 12:38:16 -0700 (PDT)
From: walsh@enron.com
To: john.lavorato@enron.com, louise.kitchen@enron.com
Subject: California Update 6/1/01
Cc: f..calger@enron.com, christian.yoder@enron.com, c..hall@enron.com, 
	mike.swerzbin@enron.com, k..allen@enron.com, tim.belden@enron.com, 
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	m..presto@enron.com, claudio.ribeiro@enron.com, 
	richard.shapiro@enron.com, james.steffes@enron.com, 
	mark.tawney@enron.com, scott.tholan@enron.com, 
	britt.whitman@enron.com, lloyd.will@enron.com, alan.comnes@enron.com
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Below are details of new plan currently being created by California State T=
reasurer Phil Angelides and supported by Sen. Burton.  The plan is in the i=
nitial stages and is not currently on any legislative fast-track.  It is al=
so not motivated by a desire to save SoCal from bankruptcy.  The creator's =
goal is to give Californians more control over their energy and electric fu=
tures as well as giving the tax/rate payers a share of the pie in return fo=
r money that has/will go to the utilities.  We will continue to monitor thi=
s plan, its supporters and progress.

Plan Z
  California State Treasurer Phil Angelides and a powerful group of legisla=
tors are finally taking action and are developing a plan to solve Californi=
a's energy crisis this summer.  The group is comprised of leftish legislato=
rs, environmental advocates, in-state energy company executives and busines=
s leaders and they are pulling together a Plan Z.  At the core of the plan =
is the recently passed authorization to erect a California Public Power Aut=
hority that issues bonds, constructs new power plants and buys up transmiss=
ion lines.  There is even talk within this group of using newly legislated =
authority to buy SoCal Edison for $3.5 billion (less than it owes) although=
 they would face huge obstacles and receive strong opposition from power co=
mpanies as well as Edison itself.
  The five-year goal is to have enough power generation capacity to guarant=
ee a 5%-15% "cushion" against energy peak demand.  Angelides and Burton wan=
t to create enough capacity to form a buyer's market.  One of the points of=
 the plan is to replace private sector generation with more public sector g=
eneration.  This plan may short-circuit private sector plans to build new p=
lants, but the state has the ability to issue $5B in revenue-backed bonds (=
in addition to the $12B rate-backed bonds).    The second key element in th=
e Angelides-Burton Plan Z is additional rate hikes for California's consume=
rs and businesses.  Although discussions are still underway between this gr=
oup and business leaders, Angelides is wanting to propose an additional 45%=
 increase in residential and commercial electricity rates, however, there i=
s immense sympathy for loading a disproportionate share of the burden on bu=
sinesses.   This increase is on top of the 50%-60% already mandated by prev=
ious PUC decisions this year.  These rate increases will do two things: sto=
p the immediate fiscal drain on the state of California and prevent emergen=
cy tax hikes (being serious considered last week). =20
  Issues to consider in regards to this plan are: (1) how much will current=
 shareholders be diluted in return for helping the utilities repay long-owe=
d debts (or what would they get if the state decided to buy up all of SoCal=
 Edison); and (2) how much will creditors have to "eat" in the legislated r=
epayment plan?   In other words how big will the equity and bond haircuts b=
e?  There is no answer to these questions right now as legislators work to =
cobble together a plan with numbers that work without triggering a massive =
and politically destructive rebellion by voters next year.