FW: Regulatory Update

See bolded comment below:

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Sent: Wednesday, May 02, 2001 11:35 PM
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Subject: Regulatory Update

New developments:
1. The Federal Energy Regulatory Commission (FERC) has issued a public
notice (see attached) regarding certain pleadings that were filed for
purposes of requesting emergency relief for qualifying facilities (QFs). The
FERC's Notice states that Ridgewood Power LLC (Ridgewood) submitted a Request
for Emergency Relief and an Updated Request for Emergency Relief, on March 8,
2001 and April 9, 2001, respectively, requesting the FERC to take action to
prevent QF capacity from going off-line in the State of California.
Ridgewood asks the FERC to take actions that will permit those QFs in
California that have not been paid fully for past power deliveries to enter
arrangements to temporarily sell to third-party buyers within California.
Ridgewood asks the FERC to declare that California electric utilities cannot
deny transmission access to QFs or otherwise frustrate the ability of QFs to
sell to third-party purchasers.
Similarly, the California Cogeneration Council (Cogeneration Council) on
April 9, 2001, filed a Motion for Emergency Relief requesting the FERC to
take action to prevent QFs from going off-line in the State of California.
The Notice states that, among other things, the Cogeneration Council requests
the FERC to require interconnection, transmission, and related services under
section 210(d) of the Federal Power Act on a temporary basis pending the
resolution of accounts receivable issues. The FERC will address the
Cogeneration Council's motion and the responses thereto in the proceeding
established for the Ridgewood filings.
The FERC is also instituting a proceeding under Section 210(d) of the Federal
Power Act on its own motion. In this proceeding, the FERC will consider
whether and to what extent it may need to order the provision of
interconnection, transmission, and related services under Section 210(d) to
alleviate generation capacity supply shortages in California.
Pleadings in response to the FERC's Notice are due by May 10, 2001.
2. Edison Mission Energy (EME) has submitted a filing at the FERC seeking
authorization for an internal reorganization. The filing states that the
purpose of the proposed transaction is to permit Edison International (EIX)
to obtain financing needed to meet its near-term obligations as well as
potential obligations under the Memorandum of Understanding (MOU) negotiated
with the State of California. The proposed transaction involves the creation
of a new intermediate holding company (NewCo) between EIX' direct subsidiary,
The Mission Group, and The Mission Group's subsidiary, EME (the new holding
company will acquire all of the common stock of EME). NewCo will secure new
financing, using its EME holdings as collateral, and dividend proceeds of the
financing up to The Mission Group, who will transfer the funds to EIX through
a loan. NewCo will establish a separate corporate structure so that it is
structurally remote from a potential bankruptcy of EIX. EME has requested
that the FERC authorize the restructuring by May 14, 2001. EME states that
EIX' current credit facility matures on May 14 and that additional
obligations come due in July and November 2001. In addition, it states that
EIX' cash requirements in 2001, including its MOU obligations, are expected
to exceed its cash distributions from subsidiaries. The FERC issued a public
notice of the filing, which provides that any pleadings in response the
filing be submitted by May 10, 2001.
3. The Independent Energy Producers Association held a press conference to
present their report "Powerful Ideas" - which offers solutions for rebuilding
California's troubled electricity market.
4. This morning, Governor Gray Davis' staff hosted a conference call to
update the financial community on the Governor's plan to address the ongoing
California energy crisis. Overall, Joseph Fichera with Saber Partners and
financial advisor to Governor Davis, said that the Governor's goal is to
protect ratepayers and the California economy. He added that the Governor
wants to focus on rates, as well as increasing energy supply. The Governor's
goal is to have a stabilized power market and 20,000 MW online by 2003.
Fichera said that the Governor's plan is the best option available for
dealing with the crisis and that the only other alternative is bankruptcy
reorganization.
The Governor's plan, which Fichera described as "detailed and complex", uses
the Memorandum of Understanding ("MOU") entered into with Southern California
Edison ("SCE") as the template for future agreements with other utilities.
The MOU requires legislative, regulatory and administrative actions to be
completed in order to be successful. On the legislative side, the Governor
will send proposed legislation to the California legislature later today or
tomorrow. At this point, no decision has been made regarding sponsorship of
the legislation or whether or not the bill will be introduced into the
Assembly or the Senate. On the regulatory side, Fichera said that the
California Public Utilities Commission ("CPUC") already has begun to
implement portions of the MOU using their normal rulemaking processes.
Fichera hopes that the CPUC will be able to complete its necessary actions in
June or July. Finally, on the administrative side, the Governor's staff is
moving forward with SCE in negotiating and documenting the definitive
agreements that are necessary to implement portions of the MOU. These
agreements are required to be completed by 15 August 2001.
With respect to the other utilities, the Governor is in the final stages of
negotiations with San Diego Gas & Electric and expects an agreement to be
reached within the next two weeks. Fichera also said that PG&E "remains on
the radar screen," and that the Governor believes that the successful
implementation of the SCE plan as detailed in the MOU will result in PG&E
coming out of bankruptcy faster. The Governor's representatives have met
with the Unsecured Creditors Committee and their representatives to review
the financial information in the MOU and the implementation plans. Fichera
said that he hopes that PG&E "will seize the opportunity" to take advantage
of the proposal on the table. He also urged the "Wall Street community to
speak with PG&E to convince the company's management to return to the
negotiating table in order to emerge from bankruptcy sooner rather than
later."
5. Lt. Gov. Cruz Bustamante filed suit against five power generators in Los
Angeles Superior Court alleging the generators conspired to drive up
electricity prices and that the five companies gained control of the state's
power market and used unlawful trading practices to manipulate prices. The
generators named in the suit are Duke Energy, Dynegy Inc., Mirant Inc.,
Reliant Energy Inc. and Williams Cos.
6. SDG&E filed suit against three power generators in San Diego Superior
Court, alleging that the generators illegal shut their plants down during the
state's power crisis. SDG&E is asking the judge to order the generators to
deliver electricity during peak periods this summer. The companies are
Sithe Energies, Applied Energy and Energy Factors.
7. A judge in Riverside County denied the request of Corona Energy Partners
LTD, a QF, to be released from its PPA with SCE.
8. U.S. Rep. Doug Ose, R-Calif., is introducing a bill to increase
hydroelectric power in the West. The bill would allow the U.S. secretary of
the interior or the secretary of the army to waive restrictions on federal
dams to address an emergency electric power shortage declared by a governor.
Ose says the bill would give hydroelectric dams more flexibility and would
help provide power when demand rises this summer.
<<QF Emergency Relief - FERC Notice.txt<<
Regards,
Paul Aronzon (paronzon@milbank.com)
Robert Moore (rmoore@milbank.com)
Ed Feo (efeo@milbank.com)
Allan Marks (amarks@milbank.com)
Fred Neufeld (fneufeld@milbank.com)
Kevin McSpadden (kmcspadden@milbank.com)
<<...<<
www.milbank.com
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- QF Emergency Relief - FERC Notice.txt