----- Forwarded by James D Steffes/NA/Enron on 03/23/2001 07:49 AM -----

	Kristin Walsh/ENRON@enronXgate
	03/22/2001 04:40 PM
		 
		 To: John J Lavorato/ENRON@enronXgate, Louise Kitchen/HOU/ECT@ECT
		 cc: Phillip K Allen/HOU/ECT@ECT, Tim Belden/HOU/ECT@ECT, Mike 
Grigsby/HOU/ECT@ECT, Tim Heizenrader/PDX/ECT@ECT, Vince J 
Kaminski/HOU/ECT@ECT, 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
		 Subject: California Update 3/22/01

Executive Summary:

? The as yet unnumbered rescue bill by Davis made it to the Senate floor
? An exemption of the gas-fired QFs from this bill (as proposed by Sen. 
Keeley) could further forestall an involuntary bankruptcy filing.
? If passed, the draft CPUC order would give the utilities another 15 days 
after rate hikes to pay the QFs
? The negotiations with the QFs are complicated by the issue of payments owed 
by the utilities to the DWR. Senators are demanding that the utilities set up 
a trust fund from rate revenues to pay back the DWR. 
? The CalEnergy ruling (as reported by Bloomberg this PM) is an attractive 
option for other QFs looking to at least temporarily escape long-term supply 
contracts with Edison.
? If neither the CPUC nor the legislature exempts the gas-fired generators 
from the new rate structure, an immediate involuntary bankruptcy filing is 
expected.  However, if the exemption is implemented, then a bankruptcy filing 
would be delayed.

1. "QF Bill" Makes it to Senate Floor


The "CPUC bill" (the number is not yet known) is in mock-up form and does the 
following:

* Repeals PUC Code section 390, which set a formula for QFs under 
deregulation.
* Amends portions of AB 1X which will ensure that DWR receives money for its 
power purchases, and includes provisions for the issuance of bonds.
* Includes a provision for SDG&E rates since they were not covered under 
other legislation.

The bill passed the Senate Energy (8-2), and also just passed the Senate 
Appropriations Committee (8-2) and is headed to the Senate Floor.  


2. Senator Comments on the Bill:

Keeley (author of bill) presented that the bill would allow the PUC to decide 
the QF contracts which is the proper authority  to debate the issue.

Most of the opposition to this portion of the bill was regarding the fact 
that the bill provides no guidance to the PUC regarding voided costs for 
natural gas-fired QFs.  Republicans offered an amendment to not have section 
390 repealed for gas-fired generators, but Keeley had concerns with the 
amendment.  Keeley stated that he did not think they should limit the PUC's 
flexibility and that as drafted the amendment was too broad.  He also 
indicated that gas-fired utilities have a legitimate issue with the draft 
order.  He said that the PUC order needs to be amended, and Keeley is 
confident that the PUC has recognized that in discussion over the past 48 
hours.

3. Opponents to the QF Bill:


The following people testified in opposition to QF portion:  TURN, Delta 
Power (QF), Syke Energy, John Hancock Financial, California Manufacturers 
Association, Crockett Cogeneration, Independent Energy Producers, Clean Power 
Campaign, PG&E, SCE.

The gas-fired QFs that testified in opposition noted that they have been 
off-line for a couple of months and cannot come back on-line unless their 
issues are addressed.

In response to the QFs not getting paid, Sen. Bowen stated that if the 
utilities do not pay the QFs as directed under the draft order, then she 
would personally see to it that they go into bankruptcy.

4. PG&E and SCE Testimony:

Sen. Battin asked both utilities about the draft order, which states that 
after the change in the rates by QFs the utilities must pay the QFs within 15 
days, and whether the utilities would abide by the order.

PG&E's response was that they are receiving $400 million per month, the cost 
of their own generation is $100 million, and the QF amount is $240 million 
per month; the draft order would lower the QF cost to $140 million.   PG&E 
was cut off at this point and asked point blank whether their answer to 
Battin's question was "yes or no."  Battin, Bowen and Murray all asked
whether it was yes or no.  The PG&E rep stated that it would be "no" if the 
issue of the payments owed to ISO and DWR is not resolved.  If the ISO costs 
of purchases were included in the DWR payments, then PG&E would not have a 
problem.

The SCE response was that if the money coming in was less than the money 
going out, then it could not comply with the PUC order.

5.  Payments to DWR

Senator Sher then asked both utilities regarding a requirement under AB 1X 
that the utilities set aside those moneys that are owed to the DWR for 
purchasing power that they collect from ratepayers in a trust fund those.  
SCE responded that they are still in negotiations with DWR on the terms and 
conditions.  Several legislators responded angrily that this was not part of 
the bill, and that they should have a trust fund set up.  PG&E noted that 
they are setting 'some' money aside, but would not state how much. Sen. Sher 
ended the conversation by stating that if the utilities do not set up a trust 
fund by tomorrow they would either pass emergency legislation or 'go after 
them' for violating the law.

1X Provisions:

Tim Gage from Dept. of Finance noted the Governor's support of the entire 
bill, and noted that the 1X provisions would ensure that DWR gets paid.

PG&E also testified in opposition to these provisions.

Senator Bowen made the following statements:

* Senator Peace has announced that he has received another notice of $500 
million appropriation needed to purchase power and will not approve the 
funding unless PG&E and SCE drop their challenge to the PUC regarding the DWR 
issue.
* Also stated that the PUC could always raise rates as a way to resolve the 
issue.