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Enron Mail |
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Executive Summary:
Bottom line- QFs better off today, utilities in worse shape After passing Senate, the QF Bill fails on technical grounds in Assembly Cal Energy ruling provides possible escape for QFs from utility commitments California net short gas supply for the summer worsens if QFs break contracts Hedge funds acquiring utility commercial paper, further litigation expected 1. QF Bill Fails In Surprise Twist AB 8X (the QF bill) failed in the Assembly (48-24). The Republicans were opposed because three measures, the SDG&E fix, the AB 1X fix, and the QF fix were all rolled into one bill by the Senate. They want the three measures split up. Concern was raised by San Diego members regarding those provisions and they wanted to see it separately in the bill form that it is currently in SB 43X. As noted yesterday, the QFs will now await a CPUC ruling on Tuesday. 2. Cal Energy Ruling Sets Stage for "Dozens" of Similar Q.F. Suits The CPUC ruling is now less important because of the Cal Energy ruling yesterday, which gave the QFs another tactic to escape their commitments to the near bankrupt utilities. Cal Energy reportedly would have filed an involuntary bankruptcy tomorrow (Friday) had they not won their law suit. Dozens, if not hundreds of suits identical to that filed by CalEnergy can now be expected from the other QFs. The QFs reportedly see themselves as free from the utilities now and want to sell direct into the merchant market, possibly out-of-state. They also want to avoid any deal whereby the state would force them to supply power in a Stage 2 or Stage 3 alert, and will contest any such measure with the FERC. 3. Summer Outlook Worsens The outlook for the summer now appears much grimmer for the state. If the gas-fired QFs alone manage to extricate themselves from their contracts with the utilities, the state will be a net 10,000 MW short for the summer rather than 5,000 MW. This is a much larger net short position to fill, and will be much harder for State Treasurer Angelides to sell to Wall Street. If all of the QFs break their contracts, the state will be 14,000 to 15,000 MW short. Essentially, if the QFs are successful in court (as it appears they would be), they are no longer part of the pool of low, fixed-rate power that the state can count on. The onus now appears to be on Treasurer Angelides to come up with a rate schedule. The QFs may go to him and ask for the state to act as forward cover for their gas contracts (the state would, of course, charge for this privilege) and negotiate a more flexible rate structure. 4 Pressure Mounts on Utilities None of this helps the utilities' situation. In fact, now that the QFs have a way out of their contracts through the courts, it appears that the business base of the utilities is reduced, so they are actually in a worse situation. Reportedly some of the utilities' commercial paper now has been sold to hedge funds. As one source put it, "the vultures have moved in." These are "the types of people who litigate."
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