Committee info:
 
 
 
-----Original Message-----
From: Jonathan Thomas [mailto:jthomas@saybrook.net]
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Subject: Early Sacramento Reaction to PG&E Plan of Reorganization


Since the POR was filed, we've had many conversations with State legislators, key staffers, legal advisors and members of the inner circle of the Governor's energy team.  While the cumulative reaction has been generally negative, it has been reasonably restrained at the same time.  The Company and we strongly recommended that no one at the State draw any lines in the sand until we (Company/creditors) have had a chance to explain why the POR makes sense and why it will succeed in spite of State objections to the contrary.
 
The State issues break down into three categories:  public policy, regulatory and statutory. 
 
Public Policy 
 
The POR is an affront to State officials who feel that the State went out of its way in AB1x to bolster up noncreditworthy IOU's by providing an alternative means to buy power when no one would deal with the IOU's themselves.   In response to that move, they see PG&E (1) pulling things out of PUC jurisdiction, where they have been forever; and (2) doing so while also questioning the DWR revenue requirements, thus putting a chilling effect on the AB1x bond deal.  These twin acts have understandably spawned a bitter "this is thanks we get?" response from a number of State officials.  
 
The State can see why the POR is attractive to the Company and the creditors.  At the same time, they think that it is a very bad plan for consumers.  Notwithstanding public comments by the Company to the contrary, they feel sure that somehow the POR will result in increased rates.
 
Unlike the SCE legislation, they don't see the POR giving generators the haircut "they deserve."  They understand that the generators will only get "allowed claims," but do not view that as sufficient "punishment" for gouging the public.
 
There is concern that if GenCo goes under FERC jurisdiction, the stage will be set down the road for sale of the hydro assets to a third party ("Enron," for example).  Such a transfer will put valuable generating assets in the hands of a third party that has no accountability to the State.
 
Finally, they are worried that SCE might find the POR attractive and file themselves, thereby mooting months worth of legislative effort.
 
Regulatory
 
Citing various PUC determinations from the past, certain State officials feel that the POR contravenes State regulations (1) against using operating cash to pay undercollections; (2) that mandate that any transfer of assets first get PUC approval; and (3) that realized value from the transfer of assets goes to the ratepayer, not the utility.  Begging the question of whether or not there is a true "transfer" of assets, none of these arguments take into account federal preemption, which is, of course, the key to the whole Plan.
 
Statutory
 
AB6x passed earlier this year puts a moratorium on the transfer of IOU assets for five years.  As before, focusing on this legislation ignores the preemption issue.
 
Specific Stakeholder Responses
 
Of the various State parties voicing concern, the PUC, as expected, is the most vocal.  While they have expressed outrage and are expected to fight the POR tooth and nail, it is worth noting that their counsel had remarks in the SF Chronicle were at worst neutral.  The Governor is studying the plan and has thus far been measured in his response.  Given his penchant for taking firm positions when he disagrees with something (and with the caveat that this may be the calm before the storm), his comments suggest that he may have at least some concern that the POR has legs.   A number of the legislators share the concerns set forth above, but have confined their public comments to the possibility that rates will rise.  A couple of their key advisors (bankruptcy counsel and CSFB), though, have preliminarily noted that the Plan has a number of "clever" and "attractive" features.  That isn't to say they buy off on the Plan, but by not denouncing it up front (indeed, the contrary has been true), they have helped get the State stakeholders to moderate their responses pending further review.   Lastly, the consumer groups are totally opposed to the POR and remain convinced that they will get stuck in the end with major rate increases.
 
The net effect of all this at the State level (at least, among the leadership) is an even greater sense of urgency to get something done for SCE.  That, of course, is much easier said than done (see today's LA Times article on page one of the California section outlining the major rift between the Governor and Senator Burton).  Given that the PG&E bankruptcy has not been the disaster anticipated either from the standpoint of service to users or economically (PG&E parent stock has fared much better than Edison parent stock since PG&E filed on April 6), an increasing number of legislators ask themselves "why should we stick our necks out to protect SCE?" and "maybe bankruptcy isn't such a bad thing after all."  So we'll see.  The Governor's third extraordinary session is due to start sometime soon.  We'll be keeping a close eye on that.
 
In the meantime, we are going to continue our discussions with the State.  We are coordinating those discussions with the Company, to make sure we're on the same page.  The goal remains to get the State to see the wisdom of the Plan and to minimize their opposition to the greatest extent possible.  I'll keep you posted...