RE: Legislative Report (07/20/2001)

From the Independent Energy Producer's lobbying firm

Sue Mara
Enron Corp.
Tel: (415) 782-7802
Fax:(415) 782-7854
----- Forwarded by Susan J Mara/NA/Enron on 07/22/2001 11:16 PM -----

"Martinez, Michael" <MRMartinez@manatt.com<
07/20/2001 08:14 PM

To: "'Alex Sugaoka (E-mail)'" <alex.sugaoka@uaecorp.com<, "'Bill Woods
(E-mail)'" <billw@calpine.com<, "'Bob Ellery (E-mail)'"
<bellery@spi-ind.com<, "'Bob Escalante (E-mail)'"
<rescalante@riobravo-gm.com<, "'Bob Gates (E-mail)'" <bob.gates@enron.com<,
"'Carolyn A Baker (E-mail)'" <cabaker@duke-energy.com<, "'Charles Linthicum
(E-mail)'" <charles.linthicum@powersrc.com<, "'Cody Carter (E-mail)'"
<cody.carter@williams.com<, "'Curt Hatton (E-mail)'"
<Curt.Hatton@gen.pge.com<, "'Curtis Kebler (E-mail)'"
<curtis_l_kebler@reliantenergy.com<, "'David Parquet'"
<david.parquet@enron.com<, "'Dean Gosselin (E-mail)'"
<dean_gosselin@fpl.com<, "'Douglas Kerner (E-mail)'" <dkk@eslawfirm.com<,
"'Duane Nelsen (E-mail)'" <dnelsen@gwfpower.com<, "'Ed Tomeo (E-mail)'"
<ed.tomeo@uaecorp.com<, "'Eileen Koch (E-mail)'" <eileenk@calpine.com<,
"'Eric Eisenman (E-mail)'" <eric.eisenman@gen.pge.com<, "'Frank DeRosa
(E-mail)'" <frank.derosa@gen.pge.com<, "'Greg Blue (E-mail)'"
<gtbl@dynegy.com<, "'Hap Boyd (E-mail)'" <Hap_Boyd@enron.com<, "'Hawks Jack
(E-mail)'" <jack.hawks@gen.pge.com<, "'Jack Pigott (E-mail)'"
<jackp@calpine.com<, "'Jim Willey (E-mail)'" <elliottsa@earthlink.net<, "'Joe
Greco (E-mail)'" <jgreco@caithnessenergy.com<, "'Joe Ronan (E-mail)'"
<joer@calpine.com<, "'John Stout (E-mail)'" <john_h_stout@reliantenergy.com<,
"'Jonathan Weisgall (E-mail)'" <jweisgall@aol.com<, "'Kate Castillo
(E-mail)'" <CCastillo@riobravo-gm.com<, "'Kelly Lloyd (E-mail)'"
<kellyl@enxco.com<, "'Ken Hoffman (E-mail)'" <khoffman@caithnessenergy.com<,
"'Kent Fickett (E-mail)'" <kfickett@usgen.com<, "'Kent Palmerton'"
<kent.palmerton@williams.com<, "'Lynn Lednicky (E-mail)'"
<lynn.a.lednicky@dynegy.com<, "'Mark Fillinger (E-mail)'"
<mark.fillinger@enron.com<, "'Marty McFadden (E-mail)'"
<mmcfadden@covantaenergy.com<, "'Paul Desrochers (E-mail)'"
<pdesrochers@thermoecotek.com<, "'Paula Soos (E-mail)'"
<psoos@covantaenergy.com<, "'Randy Hickok (E-mail)'"
<rjhickok@duke-energy.com<, "'Roger Pelote (E-mail)'"
<roger.pelote@williams.com<, "'Ross Ain (E-mail)'" <ain@worldnet.att.net<,
"'Scott Sadler (E-mail)'" <sadlersa@earthlink.net<, "'Stephanie Newell
(E-mail)'" <stephanie-newell@reliantenergy.com<, "'Steve Iliff (E-mail)'"
<siliff@riobravo-gm.com<, "'Steve Ponder (E-mail)'" <steve_ponder@fpl.com<,
"'Susan J Mara (E-mail)'" <smara@enron.com<, "McMorrow, Thomas"
<TMcMorrow@manatt.com<, "'Tony Wetzel (E-mail)'" <twetzel@thermoecotek.com<,
"'William Carlson (E-mail)'" <wcarlson@wm.com<, "'William Hall (E-mail)'"
<wfhall2@duke-energy.com<, "'nam.nguyen@powersrc.com'"
<nam.nguyen@powersrc.com<
cc: "'Jan Smutny-Jones (E-mail)'" <smutny@iepa.com<, "'Steven Kelly
(E-mail)'" <steven@iepa.com<, "'Katie Kaplan (E-mail)'" <kaplan@iepa.com<,
"'Jean Munoz (E-mail)'" <jmunoz@mcnallytemple.com<, "'Andy Brown (E-mail)'"
<abb@eslawfirm.com<, "'Carol Hudson (E-mail)'" <carol@iepa.com<, "'Sandra
Moseley (E-mail)'" <sandra@iepa.com<
Subject: RE: Legislative Report (07/20/2001)

Dear all,

Attached is this week's legislative report.

This entire week has been focused on devising a "solution" for the energy
crisis in addition to negotiating the passage of the state budget. Although
the Democratic leadership of the Assembly and the Governor successfully
lobbied four Assembly Republican lawmakers to switch sides and vote for the
budget on Monday, the four Republicans have refused to vote for five crucial
"trailer" bills which are necessary to implement the budget bill. There are
approximately 18 trailer bills that must be passed in addition to the budget
bill, but 5 have raised concerns for the Republicans: SB 767 Transportation
Funding Shift, SB 735 Elimination of School Facility Fee Housing Programs,
SB 1041 Omnibus Health Trailer Bill, AB 144 Public Social Services and SB
79 Omnibus Social Services Trailer bill. Senate President pro Tempore John
Burton has stated that they will not vote on the budget bill in the Senate
until the trailer bills are approved by the Assembly. As of 7:00 p.m.
tonight, there is no budget deal.

Meanwhile, on the energy front, the four proposals we have been discussing
all week -- SB 18xx (Burton), SB 78xx (Polanco), AB 82xx (Keeley) and AB
83xx (Wright) -- are still "in play" legislatively this evening, even though
the governor told the Dow Jones Newswire earlier today that the proposals
are not acceptable to him in their current form and encouraged the Assembly
and Senate to stay in session (despite the scheduled summer break) until a
bill acceptable to him could be agreed upon by the two houses and sent to
him for signature:

* SB 78xx (Polanco) Electric Utility Rate Stabilization Act of 2001
passed out of the full Senate on Friday with 22 AYES and 17 NOES. The
originally introduced version of SB 78xx reflected the terms of the original
Memorandum of Understanding ("MOU") negotiated between Governor Davis and
Southern California Edison ("Edison"). It was recently amended to reflect
Senator Sher's proposed "Plan B" of the MOU -- a version of the MOU opposed
by Edison on the grounds that the bill would not leave Edison creditworthy.
It was heard in the Senate Energy, Utilities and Communications Committee on
Wednesday where it failed on a 4 AYES and 3 NOES vote. Reconsideration was
granted, however, and the bill passed out of the committee with 6 AYES and 2
NOES on Thursday morning. The authors took up amendments such as striking
the urgency clause, changing the rate component from 125 KWs to 500 KWs,
placing conservation lands into land trusts and deleting Section 399.26
(which insulated Edison International from certain claims) during the
Thursday hearing. SB 78xx was then passed out of the Senate Appropriations
Committee on Thursday with 7 AYES and 3 NOES.

* SB 18xx (Burton) Department of Water Resources: electricity: bond
financing order passed out of the full Senate on Friday with 35 AYES and 2
NOES, making it possible for DWR to issue bonds at a lower, cheaper rate
than allotted in AB 1x (Keeley) assuming the Assembly concurs and the bill
is signed by Governor Davis. The bill also prohibits any additional charges
such as consultants and ad campaigns unless approved by the Legislature and
requires certain "sunshine" provisions for greater scrutiny of contracts
entered to by the DWR. We understand that J.P. Morgan and Lehman Brothers
-- the firms working with State Treasurer Angelides on the bond offering --
have advised the governor's office that SB 18xx could delay the issuance of
the bonds indefinitely for a variety of reasons, so it is unclear whether
this bill will ever be signed. The bill was heard by the Senate Energy,
Utilities and Communications Committee on Thursday where it passed with a 10
AYES and 0 NOES vote. It next must be heard in the Assembly.

* AB 82xx (Keeley) Electric Utility Rate Stabilization Act of 2001
passed out of Assembly Energy Costs and Availability Committee Wednesday
evening on a 11 AYES and 9 NOES vote. It was then heard later the same
evening by the Assembly Appropriations Committee, where it was passed on a
11 AYES and 6 NOES vote. This is the "compromise" bill we have been
discussing all week authored by Speaker Hertzberg and Assembly Member Fred
Keeley. The bill continues to be a work in progress as we write this
report, with significant amendments being considered and awaiting a vote by
the full Assembly, possibly later this evening. The current version of the
bill provides for limited direct access, state purchase of Edison's
transmission lines for $2.4 billion, a minimum 30 percent "haircut" for the
major generators and a "trust" to cover all claims not dealt with by the
haircut option.

* AB 83xx (Wright) Alternative Electric Utility Rate Stabilization Act
of 2001 was amended into AB 50xx (by Assembly Member Bill Campbell) in the
Assembly Energy Costs and Availability Committee Wednesday evening, and then
passed out of committee with 11 AYES and 9 NOES. It next must be heard by
the Assembly Appropriations Committee, barring a rule waiver. No such
committee hearing is scheduled at this time. Co-authored by Assembly
Members Rod Wright, Keith Richman, Joe Canciamilla and Bill Campbell, the
bill would allow the utilities to impose a basic monthly charge to address
the net undercollection, among other things.

Other energy-related developments this week include:

* SB 84xx (Burton) State Energy Resources Conservation and Development
Commission passed out of the full Senate on Friday with 30 AYES and 1 NO and
sent to the Assembly. This bill provides $10 million from the state General
Fund to the California Energy Commission ("CEC") to fund a matching grant
program for a battery backup power source for LED traffic signals. The grant
program will be administered by the CEC, in consultation with local
governments, and will provide 70 percent of the cost of the battery backup
system. It next must be heard in the Assembly.

* The FERC is expected to consider disbanding the current ISO Board
for an independent slate of directors on Wednesday, the FERC announced on
Friday. Despite a Dec 15, 2000, FERC order requiring the appointment of an
independent governing board for the ISO, the state has refused to follow the
order citing that only the state legislature can change the composition of
the board. Supporters of the FERC order argue that political appointees
should not oversee power markets due to the state's domineering role in
purchasing power on behalf of the beleaguered utilities.

* SB 85xx (Burton) Electrical restructuring: rates passed out of the
full Senate on Thursday with 37 AYES and 0 NOES. This bill bars the
California Public Utilities Commission (CPUC) from raising rates back to the
pre-10 percent rate reduction levels solely because the mandatory rate
reduction period has expired on March 31, 2002. It next must be heard in
the Assembly.

* The Senate gave authorization to the Senate Select Committee to
Investigate Market Manipulation on Thursday to subpoena top energy company
executives to provide testimony and further insight into their companies'
trading practices. The resolution -- SR 14 -- passed out with 28 AYES and 6
NOES.

* The Senate Select Committee to Investigate Market Manipulation voted
unanimously on Wednesday to ask the full Senate to find Texas-based Reliant
Energy in contempt for failing to comply with a subpoena for documents.
Despite Reliant's having handed over 10,000 documents, the committee
rejected them after being unable to reach agreement over the confidentiality
of Reliant's documents. The committee stepped back from its contempt vote
last week against Enron after the company and committee moved closer to
agreement over its release of thousands of documents stored in Texas.
Mirant resolved its pending contempt citation by agreeing to turn over
subpoenaed documents. The contempt citation against Reliant will be
presented to the full Senate, and then immediately sent to the Rules
Committee for another hearing before the full Senate acts, Dunn said.

* The state's estimate of being overcharged for electricity dropped
from $8.9 billion to $6.1 billion after a FERC judge ordered a readjustment
in the state's figure on Wednesday. Although the state continues to argue
that the $8.9 billion figure is correct, FERC Judge Curtis Wagner called the
figure "baseless" and criticized the California delegation for "not
negotiating in good faith" during the recent settlement discussions. The
new amount, $6.1 billion, does not include power sales to municipal
utilities and alternative energy suppliers -- two entities that do not fall
under the purview of the ISO, PX or the state DWR -- as well as applies FERC
price controls imposed June 19 and retroactively takes into account sales
from October 2 onward.

* AB 28xx (Migden) Electrical restructuring: Oversight Board: ISO
passed out of the Senate Energy, Utilities and Communications Committee on
Tuesday to Senate Appropriations with 7 AYES and 0 NOES. It was amended by
the author in committee to "double-join" it to SB 39xx (see below). This
amendment "ties" the ultimate fate of AB 28xx to the fate of AB 39xx, unless
the double-joiner language is removed from the bill before it goes to the
governor for signature, assuming the bill gets to the governor.

* SB 39xx (Speier) Public utilities failed to pass out of the Assembly
Energy Costs and Availability Committee on Tuesday with 7 AYES and 10 NOES.
Reconsideration for the bill to be reheard in the committee was granted to
the author. Given the failure of SB 39xx in committee, AB 28xx is
effectively "dead" as well for the moment (see discussion of AB 28xx above.)

Best regards,
Tom McMorrow and Mike Martinez

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