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Date: Thu, 6 Sep 2001 15:28:26 -0700 (PDT)
From: britt.whitman@enron.com
To: david.delainey@enron.com, louise.kitchen@enron.com, john.lavorato@enron.com
Subject: California update 9-06-2001
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	doug.gilbert-smith@enron.com, kevin.golden@enron.com, 
	mike.grigsby@enron.com, legal <.hall@enron.com>, 
	tim.heizenrader@enron.com, rogers.herndon@enron.com, 
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	mark.tawney@enron.com, scott.tholan@enron.com, 
	nancy.turner@enron.com, kristin.walsh@enron.com, 
	britt.whitman@enron.com, lloyd.will@enron.com, 
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X-From: Whitman, Britt </O=ENRON/OU=NA/CN=RECIPIENTS/CN=BWHITMAN>
X-To: Delainey, David </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Notesaddr/cn=28fc501b-22d3a001-62569fb-57caaa>, Kitchen, Louise </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Lkitchen>, Lavorato, John </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Jlavora>
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For questions or comments regarding this report please contact G. Britt Whi=
tman at ex:5-4014 or Kristin Walsh at ex:3-9510.

EXECUTIVE SUMMARY
Assembly's MOU Supporters "MIA," Vote Stalled =20
Bailout Hang -Ups: Land, Bonds, and Referendum
SoCal Up for Grabs?

MOU Support Waning=20
As of last night, Assemblyman Hertzberg reportedly had 25 votes in favor of=
 the bailout that he could "count on."  There were 10 more votes that were =
"close" and stood a "reasonable chance" of being cast in favor of the bailo=
ut.  However, that still left Hertzberg 9 votes short of the 41 he needs.  =
Earlier today, Sen. Polanco, the bill's sponsor, privately indicated that t=
he few remaining votes necessary to pass the amended SB 78XX were in place =
due to lobbying efforts by Gov. Davis.  No doubt the count will be close, b=
ut Hertzberg will only take the bill up in the Assembly for a vote today or=
 tomorrow if he knows Democrats can muster enough support.   =20

The key issues related to getting the 41 votes to pass SB 78XX are the foll=
owing:=20
Including the option to buy the transmission lines.  For some this is a phi=
losophical issue; these members are quite adamant that the option to buy th=
e lines needs to be removed from SB 78XX.
Excess profits and creditworthiness - In particular how Edison can use any =
profits.=20
The philosophy underlying the bill itself as to whether a bailout is necess=
ary given the experience with PG&E.  And members are skittish about voting =
for a bailout with the possibility of a bankruptcy still possible anyway.

According to Assembly leadership sources, no Senator has asked the Speaker'=
s Office for anything to be put in the bill (except for a Central Valley se=
nator, Jim Costa, who played a party in brokering the deal on Shaver Lake).=
  Leadership sources were surprised by that, and believe that many senators=
 will not hold to the Burton line of "don't even change a period in the bil=
l."  Several senators including Polanco and Costa are vested in the bill's =
passage and will want to see it brought up for a vote despite significant o=
pposition. =20

Many people, including Polanco, believe that Burton may require his worker'=
s compensation reform plan to be double-joined to the Edison MOU in order t=
o take it up for a vote.  Double joining is a legislative maneuver that tie=
s the fate of both bills together.  It creates a situation where both must =
be passed by the legislature and signed by the Governor in order to go into=
 effect.  If the Governor only signs one, neither becomes law.  But the Gov=
ernor's office has told us that Burton made a direct statement to them last=
 week that he had no intention to double join workers comp reform to SB 78x=
x. =20

Some suggest that Senate opposition lead by Burton (which remains considera=
ble) may introduce a new bailout bill if SB 78XX passes the Assembly.  This=
 new bill would be designed to be unacceptable to the Assembly.  The Senate=
 then would pass this bill on the last day of the session, and then adjourn=
 without a conference committee.  The Assembly would then be left to accept=
 or reject the Senate's bill without the possibility of amendments.  (This =
is somewhat similar to what the Senate did in July, only now the recess wil=
l be until next year.)

SoCal Bailout Barriers
Regarding media reports referencing Assemblyman Keely's deal with Davis to =
exempt 5,000-acres of the Shaver Lake area from the bill's conservation eas=
ements, the protesters representing Fresno feel that this is not good enoug=
h and they intend to pursue their lawsuit against the state regarding the e=
asements.  These protestors (and the Republicans who represent them) felt t=
hat they had achieved compromise language in the bailout last week, but thi=
s language is now gone.  While the Shaver Lake amendments (and all conserva=
tion easement language) are again in the bill, we do not believe this will =
significantly interfere with the bill's passage.  Some Central Valley membe=
rs voted in support of the bill despite the amendments, and there is only o=
ne Democrat, Dean Florez, who may vote against it because of them.

Some Senators also reportedly considering removing language from the bond p=
ortion of the bailout bill that makes the bonds "Harvey-proof" - that is, i=
mmune from a referendum by consumer advocates.  This language, which was pr=
eviously used in the California rate reduction bonds, is structured such th=
at California's credit could be compromised if the bonds are not repaid (th=
is is done by involving the California Infrastructure Bank as a party to th=
e bonds).  Some members of the Senate who are in close contact with Harvey =
Rosenfield and the consumer advocates have expressed that they want to remo=
ve this language as a diplomatic way to destroy the bailout.  If the langua=
ge is removed, there is no way that the state's credit is tied to the bonds=
.  This means that the bonds can be challenged by a voter referendum withou=
t endangering the state.  Current polls show that such a referendum, which =
would allow voters to choose not to pay the surcharge on power bills to bai=
l out SoCal, would very likely succeed.  This would mean that the bonds cou=
ld not be repaid.
=20
Wall Street firms have stated expressly that they will not purchase the bon=
ds if they are susceptible to a voter referendum, meaning that removing the=
 "Harvey-proofing" language will likely mean that the bailout bonds will no=
t be able to be sold.  SoCal is also aware of this possibility; if the lang=
uage comes out of the bill, the plan will no longer be acceptable to SoCal.

SoCal: Selling Out or Going Under
There is word in Sacramento of companies "sniffing around" for a pre-packag=
ed purchase of Edison after the bankruptcy occurs.  We will continue to inv=
estigate possible buyers and report when information becomes available.
=20
It is also rumored that if an "inadequate" bill passes - i.e., one that wil=
l not return SoCal to creditworthiness - SoCal may declare voluntary bankru=
ptcy, then use whatever bailout is passed as a revenue stream in bankruptcy=
.  The only requirement laid upon SoCal is to attempt to go back into the m=
arket by January 2003, and there is no penalty for them failing to do so.  =
There appears to be nothing in the bailout bill that would preclude them fr=
om using money from the bailout in bankruptcy.