----- Forwarded by Jeff Dasovich/NA/Enron on 04/17/2001 01:05 PM -----

	"Ronald Carroll" <rcarroll@bracepatt.com>
	04/17/2001 12:43 PM
		 
		 To: <mmilner@coral-energy.com>, <rreilley@coral-energy.com>, 
<ray.alvarez@ei.enron.com>, <acomnes@enron.com>, <jdasovic@enron.com>, 
<jsteffe@enron.com>, <linda.robertson@enron.com>, <smara@enron.com>, 
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		 cc: 
		 Subject: Fwd: California Deal With SCE Is On Shaky Ground


----- Message from "Tracey Bradley" <tbradley@bracepatt.com> on Tue, 17 Apr 
2001 12:25:37 -0500 -----
To:	"Justin Long" <jlong@bracepatt.com>, "Paul Fox" <pfox@bracepatt.com>
cc:	"Ronald Carroll" <rcarroll@bracepatt.com>
Subject:	California Deal With SCE Is On Shaky Ground
CALIFORNIA DEAL TO BUY SCE HEADED FOR TROUBLE IN LEGISLATURE, CPUC

_______________________________________________

Date: April 18, 2001 - 

A source with California State Senator Debra Bowen's (D) office says Gov. 
Gray Davis' (D) tentative agreement to buy Southern California Edison's (SCE) 
transmission assets will face tough scrutiny from suspicious lawmakers who do 
not believe it is in the best interest of ratepayers. State regulators are 
also expressing concern about the deal and consumer advocates are predicting 
its demise.

"There are two alternatives," says the Bowen source. "Lawmakers will either 
fashion a better deal or allow SCE to work out their problems in bankruptcy 
court." 

Bowen is the chair of the Senate Energy, Utilities and Communications 
Committee.

The deal calls for SCE to sell its transmission assets to the state 
Department of Water Resources (DWR) for 2.3 times its book value or $2.76 
billion. The agreement also calls for the California Public Utilities 
Commission (PUC) to establish a rate plan so that $3.5 billion of debt could 
be recovered by SCE for its power purchases before the state began buying 
electricity in January. 

"This is the single most important cash flow provision of the memorandum of 
understanding," says a source with the state Office of Ratepayer Advocate 
(ORA). "SCE will collect all of the costs they have incurred." ORA had argued 
against bailing SCE out of debt saying its parent company had ample funds.

In return for the premium paid in excess of the value of its transmission 
assets, SCE has agreed to sell the output of its generating plants at 
cost-based rates.

"Because of the premium, cost-based rates should be lower," says the ORA 
source.

"The senator is very skeptical," says the Bowen source. "The deal is a great 
benefit for generators and utilities but little, if any, benefit for 
ratepayers."

The source says there is also concern with the SCE deal because it will only 
involve about a third of the 32,000 miles of transmission lines in the state.

"If you buy a third of a bridge don't you wind up getting wet" asks the Bowen 
source. 

Davis has expressed optimism that the state will eventually obtain all of the 
state's utility transmission lines. Pacific Gas & Electric's (PG&E) 
bankruptcy filing has complicated the governor's plan, but Davis says the 
state can now obtain the assets through the courts. However, the state must 
now compete with private companies intent on the same thing. Negotiations 
between the state and San Diego Gas & Electric are continuing.

The Bowen source says provisions in the deal which fashion a way for 
generators to collect all they are owed by SCE is also of concern to 
lawmakers.

"The state's position was that the rates charged by generators were unjust 
and unreasonable," says the source. "If you now pay the generators you have, 
at the very least, a public relations problem."

The source says there may also be a court fight over the issue.

"The creditors dealing with PG&E in bankruptcy court would probably want the 
same treatment," says the source. "This creates an intriguing whipsaw effect."

A bill outlining the terms of the agreement between the state must be 
introduced before official consideration begins in the legislature. 

A source with UCAN says a bill based on the present agreement will never be 
passed.

"If it survives, it will be modified," says the source. 

Source: Electric Power Alert via EnergyWashington.com
Date: April 18, 2001 
Issue: Vol. 11, No. 8 
, Inside Washington Publishers