---------------------- 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.