Incrementalism seems to be the continuing strategy for SoCal.  Both the Assembly (AB82xx) and the Senate (SB 78xx) will pass MOU bills, but different versions that will not be reconciled until after the 30 day recess, if then.  Disaster is once-again put off until later, as both bills will pass on a non-urgency basis (as predicted yesterday) meaning that there is a 90 day delay for implementation.  This means another round of amendments, redrafts, negotiations, etc.

Sept.15 remains the key deadline.  Bank creditor forbearance will expire and in our view has only a small chance of being extended.  Moreover, FERC will have made its refund ruling by then and it is unlikely to be generous to California.

The worst case scenario for SoCal is that Burton continues to push SB78xx after the recess. For those who want to know why, keep reading. Otherwise, look for more updates later today as the full Assembly and Senate meet to vote on the MOU bills and the budget.

RJ
x39934

In committee, SCE detailed their opposition to SB 78XX.  Bob Foster (VP External for SCE) testified to  the following:

There are three problems with the legislation:
1.  Amount of haircut that SCE can sustain - cannot sustain $1 billion. (Note that many California politicians think that SoCal can get this from FERC refunds)
2.  Framework going forward for regulatory process on procurement is absent in the bill.
3.  The bill does not get the state out of the procurement of power.

Foster stated that even with the bill there is still the threat of litigation and involuntary bankruptcy. He stated that faith in the regulatory process is gone and that there needs to be an understanding that operating costs will be recovered and that a procurement framework is in place.  There also needs to be clarification on the reasonableness review process.

Question from Senator Dunn:  What would be necessary in the bill to get SCE to creditworthy status?

Response:
- Operating costs will be recovered
- Procurement framework
- Balancing account for over and under collection
- The amount of the haircut

SCE was asked how much of a haircut they could sustain and still be
creditworthy; Foster said that amount was $400 million.

Sen. Speier asked if the rating agencies had a chance to review the
legislation and if they said it was okay would SCE be in support. Foster stated that the bill does not meet the creditworthy test and he would be surprised if the ratings agencies did approve of the bill.  However, SCE probably would not be in support.

Sen. Morrow asked about the rating agencies and whether they have reviewed this type of legislation. SCE responded that the ratings agencies participated in a conference call with their lead bank and indicated that this type of proposal would not get SCE to creditworthiness.

Other problems with the bill outlined by SCE:
- Sunrise Plant:  It has been proven that the rates charged are cost-based and SCE opposes any PUC oversight of these rates.
- Transmission Lines:  SCE has problems with just charging book value of the trans lines in SB 78XX.  The debt is backed by a trust indenture and the trustee would not approve of the transfer without compensation.
- 125 kwh customers:  SCE does not break customers at this level and it
would be difficult for SCE to make this determination.
- Conservation lands:  Some lands provided in the bill are part of SONGS and are pledged for mitigation.
- The bill needs to be clarified regarding SCE vs. the parent company
references in SB 78XX.

Foster stated that, because the bill does not cover the PX liability, SCE could find itself in involuntary bankruptcy if the bill passes and is signed - he does not know.

Sen. John Burton said that SB 78xx is the bill that is going to be considered in the Senate. He said it wasn't going to be AB 82xx or Ab 83xx. 
He said to the representatives of Edison at the hearing: "I want to disabuse Edison of the notion that it is going to get a good deal at the end of the rainbow, because it is not going to happen...You will get the ability to sit down with the generators, who are your creditors, to cut a deal...This is what I kept telling people was going to happen, and this is what is happening. I am about the only person for the bill. Many of my members don't really want it. But God forbid Edison doesn't want it."