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Date: Tue, 20 Feb 2001 19:26:00 -0800 (PST)
From: kristin.walsh@enron.com
To: john.lavorato@enron.com, louise.kitchen@enron.com, 
	jeffrey.shankman@enron.com
Subject: California Update 2/20/01
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	kelly.holman@enron.com
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Bankruptcy
=09
Today, California Energy Operating Corporation sued Southern California Edi=
son seeking payment for November and December power sales, totalling $45M. =
This move is likely a sign of things to come.  It shows that generators do =
not believe that there will be a viable solution from the governor.   CalEn=
ergy is positioning themselves as a primary creditor.   Past experience dic=
tates that lawsuits are often used as a means of communication in bankruptc=
y situations.  In the case of a judgement in CalEnergy's favor, CalEnergy w=
ould be able to seize Edison's bank assets assuming there is no bankruptcy =
in the meantime.  It is another strategy for getting paid without actually =
filing an involuntary bankruptcy.  However, if there are enough of these su=
its or if Edison ignores a judgement in CalEnergy's favor, it will very lik=
ely be enough to trigger an involuntary bankruptcy filing, followed closely=
 by a voluntary filing.  The generators are stating that they will not subs=
cribe to any deal until their past bills are paid.  There currently is no a=
rrangement to pay the generators for power they are supplying to the ISO.  =
Thus, the generators are beginning to see the utilities and the state as on=
e and the same.

The governor is reportedly trying to come up with a plan that will result i=
n the lowest possible rate increase in order to minimize the public's react=
ion.  The governor has stated that he will put a plan in place in accordanc=
e with the "existing rate structure."  According to Rosenfield, he is consi=
dering a 19% rate increase.  This number was arrived at by combining the 9%=
 temporary, emergency increase passed by the PUC and a 10% rate reduction i=
mposed by the legislature under bill AB 1890 that is scheduled to expire ne=
xt month.  This increase would be put in place for as long as necessary to =
pay back the utilities' debt.  This plan contrasts enacting a 30% or 40% ra=
te increase over a period of a few years.  A lower increase over a longer p=
eriod of time, coupled with the financing charges over that same period, is=
 likely to have a detrimental effect on the California economy in compariso=
n to its neighbors.

Consumer Advocacy Group

The consumer groups continue to insist that the generators give something u=
p as part of any deal.  According to a source close to Harvey Rosenfield, h=
ead of a leading consumer advocacy group in California, Rosenfield feels th=
e longer it takes the governor to flesh out a deal with the utilities, the =
lower the price offered for the transmission assets will be.  This is due t=
o public pressure on elected officials not to enter into a bailout agreemen=
t; the pressure will only increase as time passes