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Enron Mail |
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Executive Summary ?=09Davis might concede to rate hikes for future power consumption but not = for past utility debt ?=09Davis and PG&E negotiations at a standstill, sticking point is net shor= t for PG&E this summer=20 ?=09As the days go on with no word of a secured deal, involuntary bankruptc= y chances increase significantly among small generators and QFs ?=09FERC would probably approve transmission deal but with several conditio= ns for California California Public Utility Commission Rate Increases=20 Today may be the turning point as the CA PUC reviews the size of the Depart= ment of Water Resources (DWR) rate increase to be passed along to consumer= s on their electricity bills. Until now, Davis has considered rate hikes t= o be political suicide, but there may be some relief for him from consumer = groups. Sources indicate that one of California's main consumer advocate = leaders may tolerate rate increases for future power consumption, but remai= ns adamant about not raising rates to cover past utility debt. DWR, which = is currently buying power on behalf of the state, needs more income to secu= ritize the planned $10B bond issue that is key part of Davis' plan to sign = long term power contracts. As DWR continues to spend $40 to $60 M every da= y on power purchases, a well placed source informed us the DWR is essential= ly bankrupt. It currently has no money for normal activities such as order= ing supplies, purchasing new equipment, etc. The Department of Finance is = forwarding DWR money from where ever it can (parks, other programs) to purc= hase power, but DWR's hands are tied until revenue bonds are issued. The C= alifornia State Treasurer Phil Angelides will be submitting a recommendatio= n on rate increases in order to secure revenue and cover $10 billion worth = of state bonds.=20 Davis & PG&E at Odds=20 Sources report that Davis and PG&E negotiations are facing two difficult ch= allenges: 1) PG&E wants 2.9 times book, which is far more than consumer gro= ups recommend for the sale of its transmission lines (SCE accepted 2.3), an= d 2) PG&E needs relief from Davis for PG&Es legal responsibility to be the = ultimate power purchaser for the state, and at this point Davis wants to li= mit further state energy power purchases (especially for summer). The util= ities refuse to sign a deal which will leave them billions of dollars furth= er in the red ($3 to $4 B) and PG&E may declare bankruptcy for their utilit= y subsidiary if Davis tries to force the issue. Additionally, Davis is bei= ng hounded by the press and Harvey Rosenfield to publish details of the sta= tes' 40 long-term power contracts; a measure that if accomplished would pro= vide Davis with even less negotiating power. With all this activity, Davis is starting to lose support in the state legi= slature. Sources report increasing tension between the Governor and State = Senate President Pro-tem John Burton. Burton has just announced a special = Senate Committee will investigate the generators for evidence of price mani= pulation, and the State Auditor is also planning an investigation. Davis i= ncreasingly realizes he has to protect any deal he signs against being pick= ed apart by the legislature and consumer groups later. QF's Most Likely Source of Involuntary Bankruptcy Sacramento insiders fear that a group of small generators will lose patienc= e and force bankruptcy on the utilities. SB 47X may have been California's= Qualified Facilities last hope at avoiding an involuntary bankruptcy filin= g against PG&E, SoCal Ed, and SDG&E. The bill designed to cut the QF's cos= ts and provide them with a better rate structure is being held up in the St= ate's senate. Sources indicate that a filing could come at anytime and fur= ther investigations are underway to ferret out the most likely candidates. Out with Hebert, In with Wood The Bush administration favors replacing Hebert, Jr. with Texas PUC head Pa= t Wood. There is an intense battle behind the scenes between Senate Republ= ican Leader Trent Lott , who favors Hebert, and President Bush, who wants W= ood. The administration would prefer Wood because they do not want FERC to= pick a fight with Davis which means Bush might ultimately lose some wester= n states in 2004. In effort to tone down the recent press reports, Hebert = has made several token concessions to California, including $69 million wor= th of power refunds and streamlining the federal permitting process for pip= eline and power plant installation. =20 It's is expected that FERC would most likely approve any transmission deal = that Davis could complete but with a list of conditions. Some conditions m= ight include bring the lines formally into the regional grid system as well= as other elements to pave the way for more dramatic Administrative actions= in the West next year. The Bush Administration is opposed to price caps a= nd believes in free market solutions. The Administration is also consideri= ng whether it might be a good idea to privatize Federally-owned assets such= as BPA.
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