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Enron Mail |
Davis is saying he's had discussions with us about taking a loss on our
debts?? Have we had any such conversations w/ him? ( I told the media yesterday we hadn't been contacted by him...) ---------------------- Forwarded by Karen Denne/Corp/Enron on 03/01/2001 09:08 AM --------------------------- From: Ann M Schmidt on 03/01/2001 08:54 AM To: Karen Denne/Corp/Enron@ENRON cc: Subject: Merrill Lynch Report: Governor Davis Comes to Wall Street Karen, FYI. Ann Governor Davis Comes to Wall Street 3/1/1 9:47 (New York) M E R R I L L L Y N C H Research Bulletin Fixed Income Research Reference Number 10906001 United States Mar/01/2001 09:47 Leo J. Kelser (1) 212 449-7803 Highlights of This Issue Governor Gray Davis of California met with a group of sell-side and rating agency analysts in New York yesterday. The Governor outlined his plan for restoring the utilities to financial viability so that they can meet their obligations. Below we summarize a few highlights from the meeting. Trying to Fit Solution Within Existing Rate Structure The Governor talked about the need to find a solution to the utilities' problems within the context of their existing rate structures. He indicated that the temporary 9% rate hike from January 2000 would be made permanent and that a 10% rate reduction that went into effect in January 1998 would be reversed in March 2002. Status of Negotiations with PG&E As we noted in a February 26(**th) comment, the Governor has reached an agreement in principle with Southern California Edison (EIX: B3/CC) to address that utility's past under-collections. He hopes to also have an agreement with PG&E within the next 30 days, suggesting that progress was made in particular in the last 2-3 days. However, the Governor acknowledged that reaching an agreement with PG&E was more difficult due to its larger under-collected balance and lower rates compared with SCE. Some Generators Agree to Haircut The Governor indicated that a couple of unnamed generators have voluntarily agreed to accept less than 100 cents on the dollar for their past due receivables. When pressed about which parties they've had constructive discussions with, he identified Williams (WMB: Baa2/BBB-), Enron (ENE: Baa1/BBB+) and Dynegy (DYN: Baa2/BBB+). We note that most of the generators and marketers with exposure to California have established reserves against possible losses. Importantly, the Governor said that he hoped that the banks and bondholders would not be asked to take a haircut. Prospects for Legislation and Possibility of Ballot Initiative The Governor said he is quite confident that he can reach an agreement with the utilities that the legislature can support. Although he admitted that he couldn't prevent someone from proposing a ballot initiative, the governor said that in the end, the acid test with the public is how it affects their pocket books. Thus, if there is ultimately a ballot initiative, Governor Davis is optimistic that the public will be supportive of his plan given the limited impact on electric rates. Status of Defaulted Utility Debt As we have commented in the past, it appears unlikely that the resulting legislation will pass with the required 2/3majority to go into effect immediately. Accordingly, there will be a several month lag before the utilities receive any cash. In response to a question, it appears that the state will not step in to help the utilities pay off any maturing or defaulted commercial paper. But the Governor and his advisers hope that legislation will provide enough certainty so that the companies can get bridge financing. Essentially, it appears the Governor is leaving it up to the utilities to find the money from their banks. Governor's Strategy to Keep the Lights On The Governor stated that a key reason that deregulation failed in California was that no new power plants were built in the state for over twelve years. In the intervening time, demand caught up with supply. In response, he has proposed various conservation initiatives and is trying to expedite the construction of new power plants. He set a goal of having 20,000 megawatts (mws) of new supply on line by 2004. In addition, the governor highlighted the need for additional investment in the transmission infrastructure. In particular, he cited the need to expand the capacity to import more power from Arizona as well to improve the ability to move power from south to north within the state. He suggested that part of the rationale for the state taking over the utilities' transmission grids was to ensure that the additional investment takes place. He also suggested that the state would lease the transmission lines back to the utilities to allow them to continue to operate them. In the meantime, the focus is to move away from California's over-reliance on the spot market. In that vein, Calpine (CPN: Ba1/BB+) yesterday announced the signing of two long-term contracts with the state's Department of Water Resources (DWR). One of those contracts was to sell up to 1,000 mws over a ten- year term. The other was to provide up to 495 mw of peaking capacity under a 20-year contract. Earlier in February, CPN had reached agreement with the DWR on a separate 10-year contract for an additional 1,000 mws. (EIX, WMB) MLPF&S was a manager of the most recent public offering of securities of this company within the last three years. Copyright 2001 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). All rights reserved. Any unauthorized use or disclosure is prohibited. This report has been prepared and issued by MLPF&S and/or one of its affiliates and has been approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited, which is regulated by SFA; has been considered and distributed in Australia by Merrill Lynch Equities (Australia) Limited (ACN 006 276 795), a licensed securities dealer under the Australian Corporations Law; is distributed in Hong Kong by Merrill Lynch (Asia Pacific) Ltd, which is regulated by the Hong Kong SFC; and is distributed in Singapore by Merrill Lynch International Bank Ltd (Merchant Bank) and Merrill Lynch (Singapore) Pte Ltd, which are regulated by the Monetary Authority of Singapore. The information herein was obtained from various sources; we do not guarantee its accuracy or completeness. Additional information available. 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It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. The bonds of the company are traded over-the-counter. Retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for sale. MLPF&S usually makes a market in the bonds of this company. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk. Provider ID: 10906001 -0- Mar/01/2001 14:47 GM
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