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Enron Mail |
Executive Summary ?=09Davis struggles to find Senate support for SoCal transmission deal ?=09Only chance of deal going through is a one-time quick vote; if deal has= to go to hearings - it will probably die ?=09If not transmission deal, legislators will seize assets and seek price = caps ?=09Asset seizure would target power contracts, then power plants; as a res= ult the endless court battles will ensue, but this gives Davis opportunity = to continue to blame generators and marketers ?=09Bankruptcy for SoCal is still the most likely scenario, with the QFs or= SoCal itself likely to file if the transmission deal dies or gets amended ?=09Congressional democrats rally around Davis and seize opportunity to bla= me the Administration =09 Transmission Deal and Democratic Support As Governor Gray Davis scrambles to build support for his SoCal Ed. transmi= ssion proposal, one thing is evident; the longer the deal is exposed to pub= lic debate, the less likely it is to pass. In fact, politicians have been = so leery of the deal that Davis has been unable to locate even one sponsor = to introduce the bill in the Senate. In the eyes of many Democratic legisl= ators (and all Republicans) forcing SoCal Edison into bankruptcy is looking= like a better option than buying the transmission lines; that is why the G= overnor's senior strategists have quietly been trying to schedule a quick "= up or down" vote on the transmission line purchase as early as next week. = The bill is currently not scheduled to be voted on in effort to avoid debat= e, however, if there is an opening within the next two weeks and Davis feel= s he has enough support, it will be pushed through. Because the SoCal deal= needs every piece in place as "negotiated" by Davis' team, the team wants = no amendments allowed on the Assembly floor and a quick vote. If this unli= kely fast track strategy fails for Davis, the prospects for the transmissio= n lines purchase will deteriorate steadily (keep in mind that that it canno= t even be resubmitted to the Assembly until it has been vetted by SoCal Edi= son attorneys). According to sources, the legislature is going to try to m= odify the Memorandum of Understanding between Gov. Davis and SCE. However,= the Senate leadership does not believe there will be sufficient support to= pass even a modified MOU. Burton reportedly believes that at least 6 Democ= rats will vote against it along with the Republicans. The more that bill g= ets picked apart in public, the uglier it looks and the more Democrats will= realize that they are all alone in supporting it.=20 =20 Another problem faced by the legislatures is the deal is in favor of SoCal = and not the state. Among other things, the state is overpaying by about $1= .5 billion for the transmission lines. Additionally, the MOU Davis has wit= h SoCal. Ed nearly matches, point for point, the deal Davis condemned with = PG&E. Asset Seizures Since before the PG&E bankruptcy filing, we have maintained that asset seiz= ures through eminent domain would become a major pursuit for increasingly f= rustrated Democrats. Davis' legal office has thoroughly scrubbed the law o= n eminent domain seizures of everything from power generating assets across= California to existing power contracts negotiated by, whom Davis's calls, = "profiteering power brokers". Of course, everyone in the Governor's office= understands that any seizing would immediately end up in state and federal= courts, and would be a legal nightmare (there are a few minor Constitution= al, legal and interstate commerce problems). The main thing is that the sei= zing would continue Davis's main approach to this problem -- management by = press conference -- and it would put the Governor and Democrats on the righ= t side of the issue -- punishing the capitalist leeches. According to one = senior Democratic legislator, there is movement within Democratic members o= f the state Assembly to demand that Davis agree to seize the power contract= s in return for their vote in favor of the power transmission purchase. Of = course, taking the contracts would only be setting a precedent for taking t= he power plants. The appeal of seizing the contracts is that it would alle= gedly put California state officials in charge of where the power is sold a= nd reduce mark-ups substantially as they used the contract power authority = to provide spot-market power purchases before peak emergency conditions dri= ve the price through the roof.=20 Price Caps One strong indication as to whether or not summer price caps will occur dep= ends powerfully on decisions made by the three Republican Governors from Co= lorado, Alaska and Wyoming. These three were the key players during the Por= tland Western Governor's Conference last January and, according to senior W= hite House officials, it took the personal and prolonged intervention of Pr= esident Bush himself to peel these three away from an otherwise unanimous c= all for price caps from the governors. "If they had signed that price cap a= ppeal," the administration source said, "we would already have price caps. = So if they start to make it clear something has changed, we will have to li= sten." Sources indicate that if these Republican leaders begin to rethink = their opposition to price caps, the Bush administration will be forced to r= econsider price caps as a remedy for the West.=20 Cost Plus Caps -- Think of these as Republican price caps in that their fir= st duty is to make sure private companies make money and have incentives to= provide power into the affected grid. Just to give some idea of magnitudes= in a cost plus deal, current discussions would put a cap on power costs at= something like $250 per kilowatt hour. That is a long way down from the Au= gust futures contract that is pricing in $750 per kilowatt hour, but a long= way above last August's $150/kwhr price and a particularly long way above = the cost of generating this power, which is something like $25-30/kwh.=20 Market-Price Exceptions -- The option allows the Bush administration to hav= e political credit for imposing price caps. As we write, FERC is currently = ,in the process of considering permit renewals for five companies generatin= g power in California (Duke, Dynegy, AES, Reliant and Williams). The permi= t grants a further three-year waiver that allows them to sell power into Ca= lifornia in the existing "whatever price the market will bear". In other w= ords, FERC could simply not grant these companies the right to sell energy = at the market price, perhaps by changing a definition of controlling market= share, and then power to control prices would revert back to FERC.=20 Technically, in granting the extension of these permits, FERC has to establ= ish a formal finding that the five power companies do not wield "market pow= er" -- that means they cannot affect the price of energy by withholding pow= er at crucial times. Of course, FERC has just found on three different ruli= ngs in the last four months that the companies wield exactly that kind of a= bility over market prices and has ordered minor rebates to adjust for the s= ubsequent price spikes. But that would mean FERC would have to want to wiel= d effective power over price capping in California and they have shown no d= esire on that front. The escape clause for FERC simply to renew the waivers= is that they are routinely renewed unless the company applying for waivers= controls more than 20% of an electricity market and none of these companie= s come close. In other words, the waivers option lets FERC escape if the Bush administrat= ion and FERC commissioners really want to escape. Once again, that decision= may be more in the hands of the three Republican Governors than anywhere e= lse in the country. But you can be certain that in the past few days Admini= stration officials have become fully aware of the potential political liabi= lities of doing nothing except advocating more nuclear and coal power plant= s.=20 Democrats Seize Opportunity to blame Bush Senior political leaders now think the total energy bill for the year could= come in as high as $60 billion, which would destroy state finances for a d= ecade. Add to that the constant drumbeat of numbers that voters hear every= day about their own direct out-of-pocket electricity costs (they paid $7 bi= llion for electricity in 1999, $27 billion in 2000 and are expected to pay = $70 billion this year -- ten times the rate two years ago. Then, of course,= they open bills with massive rate increases that bring all those incredibl= e numbers home in a very direct way, and, well, who can blame the Democrats= for saying there is a simple solution, but the White House won't allow it. National level Democrats realize California's power crisis is a prime oppor= tunity to chastise the Bush administration and its free-market advocate, FE= RC Chairman Hebert, over their resistance to summer price caps. As Califor= nia's leaders calculate this year's taxpayer energy bill at potentially $60= billion, a rogue's gallery of Democratic congressional leaders are current= ly meeting with Governor Davis and coordinating efforts to fan out across t= he eight western states of the power grid with a singular message: "the sol= ution to all western voters electricity problems lies right in Washington D= C, at FERC headquarters controlled by Bush Administration appointees." And= as the political dialogue takes on a more aggressive national tone and its= possible impact on control over the US Congress comes more into focus, the= solutions articulated by California's Democrats who sense they have Republ= icans on the run in the West become less and less "free market" focused. T= he two strains of the Democratic solution that are becoming an unavoidable = part of the energy picture are asset seizures and price caps. =20
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