Message-ID: <26492064.1075840899667.JavaMail.evans@thyme>
Date: Fri, 6 Jul 2001 15:07:00 -0700 (PDT)
From: kristin.walsh@enron.com
To: john.lavorato@enron.com, louise.kitchen@enron.com, david.delainey@enron.com
Subject: California/FERC update 7/6/01
Cc: christopher.calger@enron.com, christian.yoder@enron.com, 
	steve.hall@enron.com, mike.swerzbin@enron.com, 
	phillip.allen@enron.com, tim.belden@enron.com, 
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EXECUTIVE SUMMARY
?=09Davis Swaps Refunds for Costly Power Contracts=20
?=09SoCal Bailout --- Bypass
?=09Windfall Profits Tax In Debate

Refunds and Long Term Contracts
The FERC settlement talks are scheduled to end on Monday, 9 July.  However,=
 as early as today, Judge Wagner could issue a preliminary finding and if a=
 settlement has not been reached by Monday, Judge Wagner is expected to iss=
ue a ruling as soon as possible.  Judge Wagner has made a public statement =
regarding the level of refund stating that $2B was reasonable to him.  By m=
aking this comment Wagner was probably trying to manage expectations on the=
 amount of a refund.  He is viewed as being very savvy and would certainly =
have had "reasons" to make such a public statement (since he is not suppose=
d to comment on cases under review -- and has since, ironically, issued a g=
ag order).  Additionally, since FERC only has jurisdiction over about 20% o=
f the electricity flowing through California, the $2 - 3 B level could be a=
ccurate from FERC's point of view (if you use the Governor's $9 - 15 B esti=
mates as the gross amount). The assumption is that FERC can't order refunds=
 from suppliers over whom they have no jurisdiction (LA Water, munis, Bonne=
ville, etc.), and that any ruling will be limited to that percentage over w=
hich they can exert some force.
Governor Davis also wants to renegotiate $43B worth of long-term powers con=
tracts in exchange for reducing his demand that generators refund billions =
for alleged price gouging.  Speculation on what power generators and market=
ers would agree to refund vary, with lobbyists for California and other sta=
tes predicting Wagner would recommend a refund of $3-5B and those represent=
ing power companies saying it would fall well under $2B.  Wagner has indica=
ted that a refund around $2 B might be acceptable, however, given Davis's n=
ew proposal, Wagner may sweeten the pot by recommending to FERC that  power=
 providers renegotiate long-term contracts and possibly take additional mea=
sures to prevent future energy price spikes.  While Wagner lacks the author=
ity to order the renegotiations of long term power contracts, his recommend=
ation to FERC could lead FERC to issues such an order.
SoCal Bailout
At this time it appears that efforts in Sacramento to work on a SoCal bailo=
ut have essentially ceased. No one is working on a bailout and as we have b=
een saying,  it appears that a bankruptcy is a question of "when," and not =
"if."  Legislators are cautious in pursuing meaningful discussions on the M=
OU until the results of the FERC settlement talks and the amount of the gen=
erator give-back's are known.  Even the CPUC has considered the ramificatio=
ns of current events at FERC and has gone as far as delaying their decision=
 on direct access (until August) at the request of FERC Commissioner Pat Wo=
od.=20
Windfall Profits Tax
There are currently two bills that deal with windfall profits on generators=
. Of the two bills, SB 1XX appears to have more momentum because it is furt=
her along in the process and does not make any exemptions for those entitie=
s contracting with the state for long-term contracts.=20

SB 1XX (Soto) - Windfall Profits=20
This bill imposes an Electric Windfall Profits Tax on sellers of energy in =
California if the sales price exceeds $80 per MWh or another amount determi=
ned by the CPUC.  Revenue generated from this tax would be distributed, in =
equal amounts, to personal income taxpayers in the form of a refundable inc=
ome tax credit.=20
*   This bill was set for hearing on 2 July Assembly Revenue and Taxation, =
but the hearing was postponed until next week due to budget deliberations.=
=20
*   This bill passed the Senate Floor on May 17, 2001 on a 23-12 vote. The =
"nay" votes were cast by Republicans.=20

*   This bill is supported by consumer groups and opposed by several genera=
tors including Duke, Dynegy, Reliant, and Mirant. While this bill does not =
provide an exemption for long-term contract holders however, many of the lo=
ng-term contracts have provisions exemption them from any such tax.=20

AB 2X (Corbett) - Tax on Excess Gross Receipts=20
This bill would create an excess gross receipts received by sellers of elec=
tricity and authorizes the CPUC to set the base price above which the gross=
 receipts tax would apply and establishes an initial base price of $60 per =
MWh. This bill includes provisions that the bill would not apply to any con=
tracts entered into between the state and an energy generator. This bill ha=
s opposition from the energy generators and is currently pending on the Ass=
embly Floor.