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Enron Mail |
SCE held a conference call this morning to discuss the Memorandum of
Understanding (MOU) related to the sale of its transmission assets with members of the investment community. After a brief description of major provisions of the MOU, questions were taken. Following is a summary of that call. Major Components of Plan (repeatedly referred to as the "Governor's Plan") Maintains cost-of-service treatment for utility retained generation for 10 years Sale of transmission assets (or other assets) to CDWR Dedication of the "Sunrise" generation project to cost-of-service based rates for 10 years ($2 mm penalty if not on-line by August) Provision of easements and potential conveyances in fee of certain lands (at two hydro projects) Provides for full recovery of $3.5 B utility net underrecovery as of 1/31/01 Commits SCE to spend $3 B in capital expenditures over 5 years Dismissal of federal lawsuits by SCE SCE will resume traditional utility procurement obligations by 1/1/03, assuming CDWR contracts and entering into new purchase contracts as necessary It was stressed that the MOU was a comprehensive plan to be treated as an integrated package. While the CPUC and members of the legislature were involved in various stages of the negotiation, the agreement is technically between SCE and CDWR. Various regulatory and legislative approvals are necessary for implementation of the MOU. SCE has rights to terminate the MOU if the CPUC has not adopted specified "implementing decisions" within 60 days. Legislation necessary to implement certain provisions of the MOU must be passed by August 15. For ratemaking purposes the CPUC will grant SCE a 11.6% ROE on its generation and distribution rate base. Questions and Answers What was expected timing of return to investment grade for SCE? Up to the rating agencies. Many steps to go through. It is assumed agencies will be following closely but timing is uncertain. Would have to be before utility resumes power procurement obligations. Applicability of 11.6% ROE? ROE would increase from current 7% ROE to level no less than 11.6% for both generation and distribution assets on unamortized balance at 12/31/00 and capital structure roughly at 50/50. Potential for write-offs? While plan calls for full recovery of net undercollections as of 1/31/01, because of timing issues SCE may take a write-off then have a "write-up" at a later date. Interest in how/why/impact of inclusion of Mission Sunrise generation project (investor concern over market v. regulated returns)? The state was looking at all options for long-term power contracts. Market returns traded for security of long-term contract. What will be source for $3 b capital investments over next 5 years? Capital would come from retained earnings, borrowing and additional investments from holding company. Concern over ability of existing rate level (and "waterfall" disbursement) to recover all costs especially if CDWR procurement costs increase? Existing rates should cover all costs. Provisions in MOU allow adjustment to rates to maintain investment grade status. What was gained from MOU as opposed to pursuit through the courts? Speed and certainty with respect to resolution of outstanding issues. Will the sale be a taxable event? Yes. What is the URG unit cost? $.042 per kwH. In 2003 would SCE have ability to replace contracts of CDWR (when SCE resumes procurement role)? SCE would have ability to enter into new contracts, but would not ignore obligations under CDWR contracts. New contracts would be subject to PUC prudence review. SCE would file procurement plan with the PUC.
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