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Sue Mara Enron Corp. Tel: (415) 782-7802 Fax:(415) 782-7854 ----- Forwarded by Susan J Mara/NA/Enron on 06/14/2001 11:51 AM ----- "Beiser, Megan" <Megan.Beiser@edelman.com< 06/13/2001 04:39 PM To: "'arem@electric.com'" <arem@electric.com< cc: Subject: FYI: Sacramento Bee--Dan Walters: Repaying huge power debts still looms as a high political hurdle Dan Walters: Repaying huge power debts still looms as a high political hurdle (Published June 13, 2001) Gov. Gray Davis has been running around California lately proclaiming that California is "turning the corner" on the energy crisis, explicitly citing sharply lower wholesale prices for electricity and, implicitly, his improved standing in polls. Events will reveal whether Davis' June hubris was justified. Despite the recent drop in spot power prices, however, many aspects of the energy crisis remain unresolved, and chief among them is liquidating the $20 billion-plus in debts that utilities and the state have accumulated for power purchases. A $13.4 billion bond issue that is supposed to reimburse the state's general fund for more than $8 billion advanced for power purchases and then finance future electricity buys has been hung up by demands of potential bond underwriters for more assurances about repayment. The bonds may not be sold until August, if ever. And by then, nearly the entire bond issue may have to flow to the state's general fund, leaving little to finance future power buys. And then there are the $14 billion or so in debts that the state's two big utilities, Pacific Gas and Electric and Southern California Edison, incurred for power purchases before their credit was cut off in January. PG&E already has declared bankruptcy, and Edison was on the verge when Davis hurriedly signed a "memorandum of understanding" (MOU) on a rescue scheme, the centerpieces being state purchase of Edison's share of the intercity power grid, plus a plan for ratepayers to pay off the utility's debts. The Edison scheme has been denounced as a "bailout" by consumer activists and faces certain legislative rejection, despite a multimillion-dollar lobbying and public relations drive by the utility. And it's sparked a complex set of private maneuvers in and around the Capitol that are fraying the already cool relations between Davis and the Legislature's most powerful leader, Senate President Pro Tem John Burton. Davis called a dozen senators into his office Monday to press approval of the Edison MOU with minimal changes. Burton, who didn't attend, says the governor threatened legislators with rejection of their bills or budget appropriations if they didn't play ball, and promised retaliation if Davis uses strong-arm tactics for Edison. "On an issue like this, they (legislators) ought to be able to vote their consciences," Burton told reporters, denouncing the Edison deal as a "flat-ass bailout." Davis spokesman Steve Maviglio rejected Burton's account: "The governor's too smart to do any of that." As the public squabbling heats up, so is the private search for a compromise that Edison, consumerists and other principal players can accept -- without much confidence that it can be found. A dizzying array of MOU alternatives is being floated, including an effort by Burton and Assembly Speaker Bob Hertzberg to persuade Edison creditors to write off part of the debt, and for big industrial and power consumers to shoulder the rest in return for recapturing the authority to make power supply deals outside the utility grid. In effect, the plan would create two power systems, one with regulated rates for individual and small business customers and unregulated "direct access" for big users. Former Assemblyman Phil Isenberg, a lobbyist whose firm includes energy generators, is acting as a mediator on behalf of Hertzberg. Sources close to the negotiations say the big users won't entertain the deal until they know how much power the state has been buying, and at what prices. Davis has insisted on keeping that data secret, and has been sued by the news media and others to force release, but on Tuesday announced that he will agree to opening the supply contracts to inspection. The chances of an Edison deal coming together this summer are no better than 50-50 -- about the same odds of the state's completing its bond sale. And those uncertainties are compounded by great fears that California still faces the prospect of widespread and prolonged power blackouts this summer. "I don't think it's over," Burton said Tuesday in a jab at Davis. The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.com .
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