1. Legislation Passes- Short-Term Measures, Very Long-Term Measures

As we said yesterday, SB-7X passed the California State Senate easily.  The 
bill gives the state the immediate authority to purchase power via the 
Department of Water and Resources until February 2nd.  The Department will 
have $400 million available to finance power purchases, but there 
expectations that these costs could easily rise to $1 billion by next week.

AB-1X has evolved into a longer-term solution and in its current form, would 
authorize the Department of Water and Resources to enter into long-term 
contracts (as opposed to the 15 day contracts in SB-7X) to buy power at a 
price cap of 5.5 cents per kw/h.  This legislation is not expected to pass 
today and will likely be changed considerably during the upcoming two week 
period covered by SB-7X, when negotiations between generators, the utilities, 
and the state are likely to resume.

A second piece of legislation under --SB 6X--has created uncertainty in the 
markets.  This legislation will create a California Public Power Authority 
with bond issuance authority.  The uncertainty concerns whether the new 
authority will address the problem of the $12 billion in outstanding debt 
owed by the utilities.  The current text of the legislation focuses only on 
longer term measures such as expanding generation capacity and improving 
efficiency. Yet the legislation also says "the authority may issue bonds, 
exercise power of eminent domain, and enter into joint power agreements and 
buy, own, and sell land and facilities necessary for the financing of a 
project."  The general nature of this language leaves open the possibility of 
either issuing bonds to finance past debts, or using eminent domain or the 
bond authority to finance the utilities as they enter into a Ch.11 proceeding.


2. Default Update

3. Bush

As we reported on Wednesday, the Bush Administration continues to demonstrate 
little interest in getting involved