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Enron Mail |
1.=09Bankruptcy An Increasingly Attractive Option for Davis Despite the fact that the lights are on and the snowpack is approaching nor= mal levels after a month of torrential storms, back at the poker table in S= acramento the situation continues to drift toward bankruptcy. Indeed, almos= t any reading of Governor Gray Davis's political situation after the shock = LA Federal Court ruling makes forcing the utilities into bankruptcy his bes= t bet. At least one of the three major power generators (PG&E) seems to agr= ee that bankruptcy is better than cutting the deal on the table now, partic= ularly after yesterday's FERC ruling that it is okay for the company to shi= ft assets around to protect them in case of bankruptcy.=20 2.=09Davis Wants To Keep Hope Alive Until Analyst Meetings Next Week Today is crucial in determining the exact odds of a bankruptcy since Davis = wants to cut a deal if possible before heading off to lead the National Gov= ernor's Association and meet with Wall Street analysts Tuesday and Wednesda= y. In fact, Davis's desire to have something definitive to say next week is= the only reason to believe that bankruptcy can be avoided in California. A= ccording to talks with all sides, Davis has offered to buy the electricity = grid from the three largest power producers (PG&E, SoCal Edison and San Die= go) for something like $7 billion that they could use to pay off most of th= e money they owe to suppliers and creditors outside their own corporate she= lls.=20 But the questions is why the utilities would want the deal that appears to = be on offer and that leaves many people on both sides of the table wonderin= g whether Davis actually wants a deal or an excuse to get back to a situati= on where he has court-ordered cover to raise electricity rates that he know= s are necessary, but politically difficult. According to key Sacramento off= icials, "Confidence continues to wane in Davis' ability to do this. The pla= in fact is the stick he's carrying isn't awfully big." Adds another: "The k= ey people here just think the utilities are playing him. Either they're pla= ying him, or he's going to roll on the price, he's going to pay double what= the transmission assets are worth. The utilities got away with the same ki= nd of thing before, in 1996 of course." Davis is more astute than that, and= a bankruptcy judge could yet be the political cover for a resolution that = has been lacking since the utilities lost their court case in Los Angeles.= =20 3.=09Little Support for Transmission Assets Deal The transmission assets deal doesn't look attractive for anyone.=20 Davis has no particular affinity for it, having adopted State Senator Burto= n's proposal when his own preferred equity warrants idea began to fade.=20 The legislature is wary of more state involvement in the power industry, an= d concerned about the vast investment needed in the network.=20 The utilities -- PG&E in particular don't want to sell. 4.=09Accounting Ambiguities Appear; State Offers Only Tepid Support for Bon= d Scheme "There are also more and more issues quietly emerging about utility account= ing methods which the audits didn't pick up" says one California official. = "The way they calculate depreciation is very strange. If the accounts were = done on a proper GAAP basis instead of some kind of FERC basis they would l= ook different." Even if the deal goes through, the financing could be diffi= cult and very expensive. The state has definitively ruled out putting the f= ull faith and credit of the state of California behind the proposed bonds. = State Treasurer Angelides has also been informed it is unlikely they'd qual= ify for tax-exempt status.=20 5.=09Small IPP Players Furious And while the big players talk, there is increasing nervousness among small= independent and alternative generators. The small companies have been the = biggest losers so far -- their representative, Jan Smutny-Jones, was tossed= off the Board of the California ISO, and the closing of the California PX = deprives them of the main marketing channel for their power. The CEOs of la= rge companies like Dynegy and Reliant are talking to Davis on a daily basis= , but the small companies are out of the loop. They also lack the financial= resources and diversity of income streams to resist problems for long. Lar= ge companies and the major bank creditors are also aware of the potential p= olitical and relationship risks across the US if they get cast in the role = of villain in California. For the small companies, however, it is a matter = of survival. Some legislators in Sacramento are operating under the assumpt= ion that it would take a creditor committee of the large generators to forc= e bankruptcy. Not so. All it takes is three creditors owed at least $11,000= each to apply for bankruptcy. Two small companies, Cal Energy and Ridgewoo= d Power, are already resorting to the courts to try to press for payment.= =20 If bankruptcy is triggered, there is immense uncertainty about what would h= appen. No major player we talk to is confident they can predict the outcome= , especially after the shock of Judge Lew's unexpected ruling in Los Angele= s. It is likely that the issues would have to be decided ultimately by the = State Supreme Court. FERC and the Federal government could also be ensnared= as writs fly. But to many of the players, that uncertain mess following ba= nkruptcy looks better than certain loss in a bad deal.
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