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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: 7bit X-From: Dasovich, Jeff </O=ENRON/OU=NA/CN=RECIPIENTS/CN=JDASOVIC< X-To: 'drothrock@cmta.net' X-cc: X-bcc: X-Folder: \Dasovich, Jeff (Non-Privileged)\Dasovich, Jeff\Sent Items X-Origin: DASOVICH-J X-FileName: Dasovich, Jeff (Non-Privileged).pst SUMMARY OF THE DRAFT RATE AGREEMENT BETWEEN THE PUC AND DWR The Bond Structure ? Keeps the state in the power selling business for 15 years - the life of the bonds - because the bonds are repaid solely from the state's power purchase revenues and no other repayment source. ? Designed as a "net revenue bond," meaning bondholders are paid last and all other DWR costs and expenses are paid first. In order to sell net revenue bonds, DWR must show that it has guaranteed revenues to both: (1) carry out its entire operations and (2) generate enough profit to pay off the bonds. As a result, the rating of a net revenue bond depends on the overall financial health of the company - in this case, a guarantee that the overall power purchase program instituted by DWR will be paid for by ratepayers for 15 years. ? Requires that California's current energy policies and programs are set in place and not subject to further political or policy changes for at least the next 15 years and that the continued operation of this program will generate enough income to meet all the program's possible financial needs for the life of the bonds. ? Ratepayers will pay for the state's power purchase program as long as the bonds are outstanding. The Rate Agreement ? Requires the Commission to adjust rates in 45 to 90 days when DWR sends over a revenue requirement. The Commission is limited only to correcting mathematical error or costs outside the agreement's scope. If the Commission does not adjust rates according to DWR's estimated revenue calculations, the Bond Trustee may enforce bondholders' rights to have rates established at a level that satisfies DWR. ? May require the Commission to require all utilities to take DWR's power and deliver it to customers in their service territories before the utilities sell their own, often lower cost power to customers in each service territory. ? Precludes utilities from returning to the business of providing 100% of their customers' electricity needs for the life of the bonds because the state must stay in the business of buying and selling power to meet the requirements of a net revenue bond. Guarantees DWR receives whatever revenue it needs for all of its power programs and establishes the State in the power business for at least 15 years, the life of the bonds. ? Because the bonds can be repaid only from DWR sales, suggests the need to change the Legislatively imposed mandate that DWR's program "sunset" at the end of 2002. Already, the financial community has expressed concern about this provision. In response, DWR's comments on the Rate Agreement suggested that an extension of the sunset by Executive Order could allow DWR to continue purchasing power in a way that would be funded through Commission-approved revenue requirements. ? Provides generators, who negotiated long-term contracts with the state during the very height of the energy crisis when market power was being exercised, irrevocable 15-year assurances that those power purchase deals will be treated as solidly as if they were loans from the generators to the State. ? Interferes with Federal or other court efforts to review the long-term contracts entered into by the state. Because the existence of those contracts is essential to the continuation of the bond deal, the state would not be able to take advantage of any change in circumstance or law that would reduce dependence on disadvantageous long-term contracts. ? The Commission must also enforce rules so that utilities can bill and collect on DWR's behalf, and customers are subject to disconnection for failure to pay for electricity provided by DWR. ? Constitutes irrevocable financing document - the Commission may not alter or modify any of its provisions without DWR's agreement. DWR will likely need to obtain bondholder approval before agreeing to any changes. Remains in effect as long as the bonds are outstanding, regardless of how many bonds are issued. The Challenges to the Rate Agreement ? Eleven parties filed comments opposed to the Rate Agreement. ? Received comments in support only from DWR, the office of the State Treasurer, and the investment bank underwriting the bond transaction. ? Received strong opposition citing numerous flaws with the rate agreement, including: o The Commission cannot make the iron-clad guarantee to meet DWR's revenue requirement o Unconstitutional, contrary to general principles of utilities law, and outside the scope of AB 1X, the statute that allows DWR to buy power o DWR has acted illegally and the Commission's actions are illegal because they rely on allegedly improper conduct on the part of DWR Oppose the requirement that the Commission must ensure that DWR has the physical ability to stay in business using the utilities distribution networks.
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