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Date: Tue, 29 May 2001 17:47:00 -0700 (PDT)
From: kristin.walsh@enron.com
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Subject: California Update p.2; 5/29/01
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EXECUTIVE SUMMARY
?=09Senator Keeley Spearheads a New "Plan B"
?=09State to Offer Little Aid in PG&E Bankruptcy

Keeley's Collective "Plan B"
Sources report that additional details for the Plan B have just been ironed=
 out on the Assembly side.  The Assembly is working to announce a plan "as =
soon as possible"; this announcement could come this afternoon.  If it is n=
ot this afternoon, it will be later this week.   Sources Report the Republi=
cans were working with Keeley, but then felt shut out of the process, so th=
ey developed a plan of their own (a lightly publicized point last week).  H=
owever, sources believe that the Plan B is very likely to have enough Repub=
lican support to pass the Assembly.  The Senate will likely be a much tough=
er fight, but opposition to the plan remains pessimistic that they will be =
able to stop it.  The Senate appears likely to broaden the base of people w=
ho would have to pay the dedicated rate component, which will be unpopular.=
  Borrowing from elements of the Joe Nation and Florez "Plan B's," Keeley's=
 new plan is said to:
?=09Set up a dedicated rate component for SoCal to deal with part of their =
undercollect.  This dedicated rate component would apply more to "high-end =
customers."  Where the line would be drawn between who would pay and who wo=
uld not is still subject to negotiation.  The size of the dedicated rate co=
mponent is also subject to negotiation.  SoCal has suggested $3M for 10 to =
12 years.  Note, sources report that at this time, a dedicated rate compone=
nt for SoCal to pay for power going forward is NOT included in the Plan B t=
hat will be announced.  The Assembly is not certain whether this additional=
 dedicated rate component will be needed.  If the bond issuance is enough t=
o cover the cost of power purchases, no dedicated rate component for forwar=
d purchases will be needed.  By 2003 and 2004, enough additional generation=
 should be online that power prices should be low.  Therefore, the key ques=
tion becomes what will be the cost of power in 2002?  If the cost of power =
is high, rates may have to be increased at that time for SoCal to continue =
operating.
?=09The state would make a secured loan (secured against the transmission a=
ssets) to SoCal to pay back the remainder of the undercollect.  This loan w=
ould be paid back by SoCal granting the government a lower rate of return o=
n the transmission system for a period of 10 to 15 years.  This provides an=
 incentive for SoCal to sell its transmission system to the state, since it=
 would not be making as much money from the system.  Were this to happen, t=
he value would be credited toward the loan.
?=09In return, the state would receive the withdrawal with prejudice of the=
 filed rate doctrine case.  Also, SoCal would reduce the price of native po=
wer generation.  Finally, business customers (including those that would ha=
ve to pay the dedicated rate component) would have the right to apply for d=
irect access to power.
If this plan is passed, (better than 50/50 chance -as reported earlier) the=
 constitutional challenge from Michael Sturmwasser is still likely to go fo=
rward.  This is because Sturmwasser is chiefly concerned with the fact that=
 the plan results in a retroactive rate increase to pay SoCal's undercollec=
t.  Sources believe it is likely that SoCal will eventually sell its transm=
ission assets to the state if this plan is passed.  Therefore these assets =
would become municipal, making the reduction in the PUC's authority constit=
utional.

Legislature Leaves PG&E to Throws of Bankruptcy
Today, there have been discussions concerning PG&E regarding "Plan B" and t=
he legislature.   Currently, the legislature is NOT considering offering Ke=
eley's "Plan B" solution to PG&E.  If the Plan B mentioned above passes the=
 Senate, it is more likely that the state will purchase PG&E out of bankrup=
tcy.  Both the Assembly and the Senate leadership are talking seriously abo=
ut purchasing PG&E out of bankruptcy, though the Republicans remain strongl=
y opposed.  The state then, would likely sell off pieces of PG&E (except fo=
r the transmission assets, which it would retain).