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Enron Mail |
EXECUTIVE SUMMARY
?=09A New MOU Takes Shape in the Assembly ? The Fate of Direct Access ? DWR Rate Agreement California's Assembly Rallies 'Round a New MOU The lights were burning late in the California Capitol last night as lawmak= ers in the Democratic caucus volleyed final versions of the newly consolida= ted Edison MOU bill, AB82. Details leaked to the public concentrate on dis= putes over the valuation of SoCal's transmission line assets, however, sour= ces report this matter is only a prelude to even greater contentious langua= ge buried in the bill's various sub clauses. Earlier media reports noting = that the bill would be based on Senator Burton's preferred legislation are = also far off the mark. The draft bill tries to get the State out of the po= wer business as fast as possible and binds power users to decades of high p= rices. The proposed language also significantly reduces the chance of a So= Cal Ed bankruptcy and provides the company with lavish concessions. SoCal = Ed is complaining about some technical details in public, but the draft bil= l offers probably the most generous deal any electricity utility has seen f= rom regulators. Sacramento insiders tell us the bill has "a pretty good ch= ance" of passing in the next 3-4 days, but could touch off a political and = legal storm because of its draconian impact on Californian power users.=20 The Assembly's AB 82 contains three primary additions that distinguish it f= rom thee Senate's SB 78XX bill and:=20 1)=09The Governor and Assembly Democrats propose to charge a massive 'exit = fee' to any end user wanting to switch a future alternative power providers= . All California electricity users will be liable for the cost of Governor= Davis' expensive long-term power contracts for their whole term (save muni= cipalities like SMUD and LADWP). This is apparently the only acceptable co= mpromise for legislators that would both secure revenue to cover the State'= s long-term power costs and maintain the promise of direct access establish= ed at the onset of California's deregulation. The clause sidesteps some of= the obstacles the California State Constitution places in the way of stopp= ing direct access, particularly for municipalities. But it could still be = open to legal challenge. California officials hope that it will be enough = to quiet the issue until the October power bond sale is finalized. 2)=09The Assembly expanded the rate base of "commercial class" users to pay= back SoCal's bailout bonds by incorporating small businesses that use 20 k= W. It appears likely that this change was made because S&P told the state = that a larger rate base would be needed to support the bailout bonds. S&P = wants all ratepayers to help repay and secure the bailout bonds; including = small businesses. This change is likely to draw heavy fire from the powerf= ul California Technology and Manufacturers' Alliance (CTMA). 3)=09The PUC will be mandated to set rates at any level necessary to preser= ve SoCal Edison's solvency and borrowing ability. This regulation essentia= lly links consumer electricity rates with maintaining SoCal's investment gr= ade credit rating. Arguably, SoCal would need to do little more than make = a case that that S&P might downgrade them and the CPUC would necessarily re= spond with a rate increase. If SoCal can get this concession, the nickel an= d dimes issue of transmission line valuation will be muted, a promising sig= n to those fearing bankruptcy. Sources within the Sacramento Capitol inform us that the Governor and Hertz= berg are likely to get their way for now. The precise wording of the clause= s may be toyed with in the final markup session, but we understand there is= considerable momentum behind the substance. There are some indications th= at the Governor may have overestimated the amount of support AB82 has in th= e Assembly. Republicans are not on board, so if the bill passes it will be= subject to 90 days delay before taking effect. It remains unclear whether= the plan will come to a vote next week. When/if the plan does pass, it wi= ll likely have no more than a 50% chance of escaping the Senate. Senator B= urton, the consumer advocates, and the CTMA are staunchly against any plan = that would include small businesses in paying off SoCal's bailout bonds. S= en. Minority leader Burlte told several lobbyists yesterday that the Republ= icans would walk away from any amended SB 78XX that emerged in the House, h= aving already agreed to the Sher bill (SB 78XX) before the recess. This is = reportedly the same attitude Brulte's counterpart in the Senate, John Burto= n, has articulated -- and not a good sign for Edison. Direct Access=20 Contrary to the CPUC's press release explaining their decision to delay the= direct access ruling to allow more time to review the case, sources report= the reason for the delay is that the Commission prefers to wait for the Le= gislature to act on SB 18XX (bond repayment) before ruling. Key business c= ommunity leaders expect the PUC to formally end direct access on Sept. 6. H= owever, the Legislature has the authority to reinstate direct access in wha= tever form it may choose.=20 Presuming the PUC carries out the expected action and permanently suspends = direct access; the following are some possible outcomes:=20 ?=09The Legislature, under pressure from a unified business community, coul= d restore direct access before the end of the session allowing moderate Dem= ocrats in swing districts to say they protected the economic climate, but o= nly with exit fees and time commitment restrictions that are unpalatable to= businesses. Many in the business community are willing to accept having to= "eat" a DWR surcharge for long-term power contract commitments and a surch= arge to pay for a substantial portion of Edison's accumulated debt. But acc= ording to our sources, Legislative Democrats are insisting on exit fees sub= stantially beyond these surcharges to head off the need for additional resi= dential rate increases that might be needed to satisfy DWR commitments. ?=09If this occurs, or if the Legislature simply stands idle and declines t= o restore direct access, business leaders may likely give up on direct acce= ss and shift their efforts to restructuring the rate allocation to shift a = greater portion of the burden to the residential ratepayer classes. (The Ma= rch rate increase by the PUC placed a disproportionate share of the revenue= requirement burden on the industrial ratepayer classes.) This would presen= t a huge political challenge. But because the amount of net short power exp= ected to be available for direct access agreements is so small -- one estim= ate places it at no more than 5000 MW (or about 10% of demand) through 2007= -- there is growing sentiment in the business community that it is no long= er really worth fighting for direct access given the political obstacles. ?=09Additionally, there is the interesting prospect that DWR itself might e= xpand and dominate the market for net short power sales, given the agency's= expected surplus supply via the forward contracts. There is nothing in law= or regulation currently that would prevent DWR from acting as a market par= ticipant and selling excess power; indeed, DWR already sells excess power t= o municipal utilities, private utilities and power managers outside Califor= nia.=20 DWR Rate Agreement and Edison Rescue=20 In the Senate informational hearing today on the DWR rate agreement, DWR re= presentatives acknowledged that the agency is still negotiating contracts f= or additional forward power. This prompted concern by some legislators and= consumer activists who believe DWR has already over-purchased long term po= wer, causing sales by DWR of excess power for as little as $1 per MW at tim= es this summer.
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