---------------------- Forwarded by Phillip K Allen/HOU/ECT on 05/07/2001 
06:54 AM ---------------------------
From: Kristin Walsh/ENRON@enronXgate on 05/04/2001 04:32 PM CDT
To: John J Lavorato/ENRON@enronXgate, Louise Kitchen/HOU/ECT@ECT
cc: Phillip K Allen/HOU/ECT@ECT, Tim Belden/ENRON@enronXgate, Jeff 
Dasovich/NA/Enron@Enron, Chris Gaskill/ENRON@enronXgate, Mike 
Grigsby/HOU/ECT@ECT, Tim Heizenrader/ENRON@enronXgate, Vince J 
Kaminski/HOU/ECT@ECT, Steven J Kean/NA/Enron@Enron, Rob 
Milnthorp/CAL/ECT@ECT, Kevin M Presto/HOU/ECT@ECT, Claudio 
Ribeiro/ENRON@enronXgate, Richard Shapiro/NA/Enron@Enron, James D 
Steffes/NA/Enron@Enron, Mark Tawney/ENRON@enronXgate, Scott 
Tholan/ENRON@enronXgate, Britt Whitman/ENRON@enronXgate, Lloyd 
Will/HOU/ECT@ECT 
Subject: California Update 5/4/01

If you have any questions, please contact Kristin Walsh at (713) 853-9510.

Bridge Loan Financing Bills May Not Meet Their May 8th Deadline Due to Lack 
of Support
Sources report there will not be a vote regarding the authorization for the 
bond issuance/bridge loan by the May 8th deadline.   Any possibility for a 
deal has reportedly fallen apart.  According to sources, both the Republicans 
and Democratic caucuses are turning against Davis.  The Democratic caucus is 
reportedly "unwilling to fight" for Davis.  Many legislative Republicans and 
Democrats reportedly do not trust Davis and express concern that, once the 
bonds are issued to replenish the General Fund, Davis would "double dip" into 
the fund.  Clearly there is a lack of good faith between the legislature and 
the governor.  However, it is believed once Davis discloses the details of 
the power contracts negotiated, a bond issuance will take place.  
Additionally, some generator sources have reported that some of the long-term 
power contracts (as opposed to those still in development) require that the 
bond issuance happen by July 1, 2001.  If not, the state may be in breach of 
contract.  Sources state that if the legislature does not pass the bridge 
loan legislation by May 8th, having a bond issuance by July 1st will be very 
difficult.

The Republicans were planning to offer an alternative plan whereby the state 
would "eat" the $5 billion cost of power spent to date out of the General 
Fund, thereby decreasing the amount of the bond issuance to approximately $8 
billion.  However, the reportedly now are not  going to offer even this 
concession.  Sources report that the Republicans intend to hold out for full 
disclosure of the governor's plan for handling the crisis, including the 
details and terms of all long-term contracts he has negotiated, before they 
will support the bond issuance to go forward.

Currently there are two bills dealing  with the bridge  loan; AB 8X and AB 
31X.  AB 8X authorizes the DWR to sell up to $10 billion in bonds.  This bill 
passed the Senate in March, but has stalled in the Assembly due to a lack of 
Republican support.  AB 31X deals with energy conservation programs for 
community college districts.  However, sources report this bill may be 
amended to include language relevant to the bond sale by Senator Bowen, 
currently in AB 8X.  Senator  Bowen's language states that the state should 
get paid before the utilities from rate payments (which, if passed, would be 
likely to cause a SoCal  bankruptcy). 
 
According to sources close to the Republicans in  the legislature, 
Republicans do not believe there should be a bridge loan due to money 
available in the General Fund.  For instance, Tony  Strickland has stated 
that only 1/2 of the bonds (or approximately $5 billion)  should be issued.  
Other Republicans reportedly do not support issuing any  bonds.  The 
Republicans intend to bring this up in debate on  Monday.  Additionally, 
Lehman Brothers reportedly also feels that a  bridge loan is unnecessary and 
there are some indications that Lehman may  back out of the bridge loan.
 
Key Points of the Bridge Financing
Initial Loan Amount: $4.125 B
Lenders:  JP Morgan  $2.5 B
   Lehman Brothers  $1.0 B
   Bear Stearns  $625 M
Tax Exempt Portion: Of the $4.125 B; $1.6 B is expected to be tax-exempt
Projected Interest Rate: Taxable Rate  5.77%
   Tax-Exempt Rate  4.77%
Current Projected 
Blended IR:  5.38%
Maturity Date:  August 29, 2001
For more details please contact me at (713) 853-9510

Bill SB 6X Passed the Senate Yesterday, but Little Can be Done at This Time
The Senate passed SB 6X yesterday, which authorizes $5  billion to create the 
California Consumer Power and Conservation  Authority.    The $5 billion 
authorized under SB 6X is not the  same as the $5 billion that must be 
authorized by the legislature to pay for  power already purchased, or the 
additional amount of bonds that must be authorized to pay for purchasing 
power going forward.  Again, the Republicans are not in support of these 
authorizations.  Without the details of the long-term power contracts the 
governor has  negotiated, the Republicans do not know what the final bond 
amount is that must  be issued and that taxpayers will have to pay to 
support.   No further action can be taken regarding the implementation of  SB 
6X until it is clarified how and when the state and the utilities get paid  
for purchasing power.    Also, there is no staff, defined purpose, etc. for  
the California Public Power and Conservation Authority.  However, this can  
be considered a victory for consumer advocates, who began promoting this 
idea  earlier in the crisis.
 
SoCal Edison and Bankruptcy
At this point, two events would be likely to trigger a SoCal bankruptcy.  The 
first would be a legislative rejection of the MOU between SoCal and the 
governor.  The specified deadline for legislative approval of the MOU is 
August 15th, however, some decision will likely be made earlier.  According 
to sources, the state has yet to sign the MOU with SoCal, though SoCal has 
signed it.  The Republicans are against the MOU in its current form and Davis 
and the Senate lack the votes needed to pass.  If the legislature indicates 
that it will not pas the MOU, SoCal would likely file for voluntary 
bankruptcy (or its creditor - involuntary) due to the lack operating cash.  

The second likely triggering event, which is linked directly to the bond 
issuance, would be an effort by Senator Bowen to amend SB 31X (bridge loan) 
stating that the DWR would received 100% of its payments from ratepayers, 
then the utilities would receive the residual amount.  In other words, the 
state will get paid before the utilities.  If this language is included and 
passed by the legislature, it appears likely that SoCal will likely file for 
bankruptcy.  SoCal is urging the legislature to pay both the utilities and 
the DWR proportionately from rate payments.