Sue Mara
Enron Corp.
Tel: (415) 782-7802
Fax:(415) 782-7854
----- Forwarded by Susan J Mara/NA/Enron on 05/18/2001 12:11 PM -----

	"Fairchild, Tracy" <tracy.fairchild@edelman.com>
	05/18/2001 11:48 AM
		 
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		 cc: 
		 Subject: Governor  Davis' Lead Bond Counsel Holds Teleconference Today wi th 
Financial Analysts: Summary


> Governor  Davis' Lead Bond Counsel Holds Teleconference Today with
> Financial Analysts: Summary
> 
> The host of the teleconference was Mr. Joseph Fichera, CEO of Saber
> Partners (serving as Governor's independent Bond Counsel)
> 
> Mr. Fichera's goal appeared to be to calm the financial markets as the
> Governor is hoping under a best case scenario to put the bonds out to
> market sometime in June.  Fichera told me yesterday that he does these
> calls on an "as needed" basis.  There appeared to be some concern that the
> "media is getting ahead of the story" and the inference could be made that
> this is causing problems for the Governor's MOU legislation (which they
> also said they hope to have signed by June) and perhaps for the emerging
> "Plan B" as well.  
> 
> A replay of this teleconference is available at www.energyinfo.ca.gov.ca
> 
> Mr. Fichera broke down his statement into the following sections:
> 
> California State Senate: Pieces of Governor's MOU legislation moving in
> separate committees; in the Senate this is positive for moving it forward.
> 
> Assembly Plan B Group: Assemblymembers Keeley, Dutra and Nation are
> working together and have good ideas to move the Governor's MOU
> legislation through.  Fichera said that the Governor's office is meeting
> with both parties but the plan is still in the  formative stages.  He
> added that they still have the Senate to deal with and no movement on the
> proposal is imminent.  They are hopeful that it will be "moving toward
> resolution in a week or two."
> 
> Generators: Fichera stated that since the Governor's meeting with the
> generators, a subgroup has agreed to continue to meet with Governor's
> staff and advisors to resolve the issues.  He stated that the issue of
> litigation and investigations by the AG's office is "off the table" for
> discussion and that topics of discussion are limited to supply issues and
> managing the coming summer.
> 
> QFs: Governor's team has facilitated 5 days of discussions with SCE and
> QFs over past two weeks; most QFs are represented at these negotiations.
> They continue to discuss the back payments owed and lower prices going
> forward to give pricing stability to CDWR and the market.  Their hope is
> that due to negotiations, the QFS will all be fully available to the
> market this summer.
> 
> PGE:  They see the bankruptcy judge's refusal to allow certain QFs to get
> out of their contracts as a positive development. 
> 
> QFs on-line: There are currently 700 MWs off-line; this is better than
> their model anticipated for May.  They expect more than 90%
> on-line by June.  Last month 1700 QF MWs off-line; Fichera explained that
> standard QF contracts have severe penalties if not on by June 1 during
> peaks but that they are allowed to be off during off-peak hours.  He added
> that they are still trying to resolve their issues.
> 
> Key aspects of budget plan (by this I believe he meant energy financing,
> not the annual budget):  conservation and contracts
> 
> Conservation: They built in a 4% reduction in demand and 3% reduction for
> price elasticity--conservatively projecting  7% in conservation.  He
> stated the we saw 9% conservation in March and April, "so we think our
> model is conservative."  Fichera added that the new electricity rates go
> out in June and they expect that this will cause a "good reaction" due to
> price signals and demand reduction.
> 
> They also built in 2% in natural load growth to their projections as well
> to further ensure a conservative estimate.
> 
> Energy Costs: Projected ($1.78 billion) vs. actual ($1.80 billion) equals
> a variance of 1.4%
> 
> May Energy Costs:  As of May 6th, right on budget target, with a variance
> of less than a half percent
> 
> Contracts:  Fichera stated that DWR continues to execute new contracts and
> reduce the net short exposure in the spot market.  He added that 10-20% of
> necessary contracts are not yet executed, but rather in the agreement in
> principal stage.  He released the following stats:
> 
> Needed executed contracts completed (these percentages must refer to
> projected load accounted for): 43% for May, 67% for June, 48% for July,
> 42% for August
> 
> When agreements in principle added in: 73% for June, 67% for July, 60% for
> August:
> 
> Questions from analysts:
> 
> Have you built-in an assumption that QFs will be able to opt out of
> contracts?  "No, we do not because we are fighting the opt-out positions.
> The bankruptcy judge refused to allow this and the AG is probably going to
> be involved to stop that.  A few hundred MWs have gone into the market.
> We are aware of this issue, which is why we're pushing the MOUs--this
> litigation would stop if we get an agreement on the MOU because the back
> payment issue would be settled."
> 
> Timing with SDG&E,  where are you on MOU or Agreement in Principle?  We
> have to constantly reevaluate our negotiations   due to other decisions
> {happening simultaneously around us].  We are resuming face to face
> negotiations on Monday and we are still resolved to reach an agreement.
> There is no drop dead date.
> 
> Generators working group? We're discussing DWR credit issues, summer,
> support for MOU--the generators have issues with outstanding payments due.
> The Governor expects them to provide haircut re: those payments and that's
> part of discussion.
> 
> QF resolution: will gas QFs be released from contracts?  We don't know
> what PG&E is going to do but they could do that-- release at any time--no
> indications yet--haven't affirmed all the contracts yet.  We want to avoid
> this in the SCE situation.  There are a lot of overlapping QFs that supply
> both utilities.  We are trying to set a standard as to what we are looking
> for.
> 
> Bond issue timing? The current plan, assuming there is no further action
> by the legislature, is to close sales 91 days after bond sales, on Aug.
> 14.  We have sufficient cash to carry us through this period.  We are
> making a bridge loan from the General Fund.  In June we see improved
> revenue stream from ISO; rate increases will also improve cash stream.
> 
> Can you give us any prices on new contracts?  Not on new contracts, we are
> resisting for market reasons giving out individual prices for individual
> contracts.  Our website has aggregated average prices for contracts signed
> so far.
> 
> Where is the legislature?  Legislators want to see sharing of the pain--so
> far the focus has been mostly on generators.  The undercollection is
> associated so far with the generators, legislators are beginning to see
> that only about 1/3 of the undercollection is tied to generators.  So
> should QFs and commercial banks share the pain?  Some think some are less
> guilty than others.  We can only deal with Edison.  The media has gotten a
> little ahead of the process, this is going to take longer than a few
> weeks.  
> 
> Handicap?  Lead horse?  The Assembly is more organized and focused right
> now on enhancements and changes to the Governor's  plan; the Senate is not
> as organized, though we have engaged with Senator Burton--we met with him
> 3 times this week.  And the Senate Majority leader has sponsored a bill to
> implement the Governor's plan.
> 
> If QFs freed up from contracts under bankruptcy or otherwise released from
> contracts--how does this affect your financial plans?  "I think it would
> change it dramatically.  It would be a budget busting event."  That's why
> we're resisting in court and pushing the MOU and hope that the legislature
> sees why bankruptcy is not a viable solution.
> 
> Does this need to be solved before bond issue?  The combination of AB1x
> and 31x gives us ironclad bonding authority and the legal ability to
> recover all costs.  We think that only a few QFs can survive without
> long-term contracts, so it's also possible that not all would go into spot
> market, few may be able to survive as merchant generators.  
> 
> Windfall profits tax--helpfulness of generators--did they perform
> adequately during summer of 2000?  What are your expectations of their
> performance?  The Governor did not have a quantitative answer in mind--he
> left that open as to how he'll evaluate their performance. People at DWR
> and ISO will probably have the strongest influence on the Governor in this
> matter.
> 
> Bond issue timing?  We are working with the treasurer and hope to sell
> bonds by end of June "if stars are aligned"--it may be one mega-deal or
> several tronches (sp?)--this is still open for discussion.  Even with the
> rising prices that we expect this summer, most of our net short will be
> under contract or reduced due to demand side management and thus we don't
> expect our budget to be busted.
> 
> Extended bridge financing commitment?--irrelevant because we don't have
> authority to issue for 90 days.
> 
> Renewable QFs/gas prices--is there anything can you do--levelize gas
> prices so they can operate under "S-rack" (sp?) price formula?
> 
> Many options have been discussed, to bring them into the market we need
> such issues to become part of the global settlement and to continue to be
> worked out.
> 
> Polanco MOU legislation: is it identical to the Governor's view or already
> changed?  This is the implementing legislation for the Governor's MOU--not
> changed so far.  Governor did not put MOU on table as legislation that
> could be changed. (He went on to explain that anything taken out must be
> replaced in some other fashion to keep the MOU balanced...) This is going
> to take some time; however, we do have a sense of urgency--we are hoping
> for a vote sometime in June.  The MOU has deadline of August 15.
> 
> Tracy Fairchild
> Senior Account Supervisor
> Edelman Public Relations Worldwide
> (916) 442-2331
> tracy.fairchild@edelman.com
>