FYI


----- Forwarded by Robert Neustaedter/ENRON_DEVELOPMENT on 05/11/2001 09:30 
AM -----

	"Roger Yang" <ryy@mrwassoc.com>
	05/10/2001 06:56 PM
		 
		 To: Robert.Neustaedter@enron.com
		 cc: 
		 Subject: Update on Securitization


Robert,

The following is an update of bond issues for California: 

The SCE MOU would allow SCE to issue bonds to recover $2 billion in 15 year 
bonds; 
SB 1X 31 would allow DWR to issue bonds to recover $13.4 billion in purchases 
for 2001; and 
Under a similar ratemaking treatment and transmission purchase agreement in 
the SCE MOU for PG&E, PG&E would need to issue $4 billion in bonds. 

This would result in over $6 billion in bonds for PG&E and SCE 
undercollections through January 31, 2001.

The $13.4 billion in bonds for DWR appears reasonable to the extent that the 
FERC soft price caps recently approved by the FERC does not result in market 
prices that exceed $300 per MWH and gas prices used to determine QF prices 
average $7.4 per mmbtu.? Also, the reasonableness of the $13.4 billion is 
also predicated on QFs generating their full capability under their QF 
contracts.? These conditions do not appear to be materializing.? However, 
conservation impacts and recently approved CPUC retail rate increases may 
decrease demand to lower costs by lowering the overall net short for the 
utilities.

In terms of other benchmarks for assessing the reasonableness of the $13.4 
billion amount, the CPUC proposed decision in the rate design proceeding 
cites that DWR expects to incur $9.2 billion for PG&E, SCE, and SDG&E through 
June 2001.? If we extrapolate this number to $18.4 billion for all of 2001 
and subtract out $3.3 billion for the rate increases for PG&E and SCE that is 
expected for the remaining year, the result is $15.1 billion that would need 
to be securitized.? However, SDG&E will also be contributing revenues to 
reduce the net amount needed to be securitized.? Putting this all together, 
demonstrates that the $13.4 billion could be a reasonable amount and any 
additional shortfalls would need to be funded through the State's general 
fund surplus.? The issue of using State surpluses in lieu of securitization 
was an issue in the legislature that prevented Republican support for a 
super-majority approval.? It looks at the end of the day, both securitization 
and the use of the State's surplus will be needed to fund the revenue 
shortfalls in 2001 and both Democrat and Republican solutions will eventually 
be implemented.

Roger??