Enron Mail

To:steven.kean@enron.com, richard.shapiro@enron.com, james.steffes@enron.com,kenneth.lay@enron.com, jeff.skilling@enron.com, pat.shortridge@enron.com
Subject:Great editorial
Date:Tue, 10 Jul 2001 10:36:24 -0700 (PDT)

Here's an editorial that gets to the heart of the matter. =20

Tuesday, July 10, 2001 Ghost of Bob Citron roaming halls of capitol =
Gray Davis is following footsteps of former O.C. treasurer into fiscal cha=
os JOHN M.W. MOORLACH Mr. Moorlach is the Orange County treasurer-tax =
collector. A recent L.A. Times poll found that Californians still remain =
unconvinced that our state suffers from a shortage of energy. Perhaps the s=
tate's subsidizing of the actual costs for electricity these past five mont=
hs has caused us to believe that everything is fine. It is not. The state =
has been spending an average of $57 million, a medium-sized city's annual b=
udget, per day for electricity. Now California is headed toward the same fi=
nancial catastrophe that was imposed on its shareholder-owned utilities, fi=
nding one of them in Chapter 11 bankruptcy and another on the precipice. At=
this pace, it will not be long before the state will be staring a Chapter =
9 bankruptcy filing in the face. That's why I'm gnawed by this "d?j? vu" s=
ensation. The similarities and parallels between California of 2001 and Ora=
nge County of 1994 are frightening. Here's a refresher. In 1994 the county,=
through former Treasurer Robert Citron, was borrowing at variable rates an=
d investing at fixed rates. The "experts" and the "politicos" were comforta=
ble with the investment scheme. No wonder the electorate was convinced tha=
t there were no investing improprieties. Even while their former treasurer =
was very secretive about how he was investing and what his "exit strategy" =
would be. Guess what? The unexpected happened. Short-term borrowing rates d=
oubled. The cost of borrowing suddenly exceeded the revenues being generate=
d. It caused the investment pool to implode and Orange County taxpayers re=
alized a $1.64 billion loss. In spite of pleas to avoid or minimize this tr=
ain wreck the county's leadership, he ignored it. The rest is history. In a=
half-pregnant deregulation scheme, the state capped the retail price that =
the utilities can charge. It also eliminated the availability to acquire el=
ectricity through the use of long-term contracts. Guess what? The unexpect=
ed happened. The wholesale price for electricity spiked dramatically above =
the inflexible retail price cap. It depleted the available funds for the ut=
ilities, and then some, and they are imploding. In spite of pleas from the =
utilities imploring Gov. Gray Davis to avoid or minimize this train wreck, =
he ignored them. The rest is also history. It gets worse. Davis doesn't al=
low for the immediate raising of retail rates and decides to have the state=
secretly purchase electricity. Guess what? The expected happened. He deple=
ted our budget surplus! Our reserves! Nearly $9 billion - and counting! He'=
s a Citron, only quintupled! And in the light of day, the secret purchases=
were not attractively priced and only compound this financial nightmare. G=
ov. Davis has done what no Libertarian or Republican could ever dream of do=
ing in such a short time. He has returned the budget surplus created by tax=
payers to the residents of California by subsidizing their electricity bill=
s. Bravo! It may not be the most equitable way of refunding taxes, but has=
anyone ever thought up a more efficient method? But, that's not all. He wa=
nts it back! Davis now wants to borrow some $13 billion to replace the spen=
t reserves and purchase even more electricity at rates in excess of the ret=
ail prices! When does this train wreck in slow motion stop? And how do we =
pay off these bonds? Davis did not want to raise rates last summer or this =
past winter. But now he will to pay off this historically largest municipal=
bond offering with a significant utility rate increase. The ratepayers wil=
l be reminded for 10 years after Davis is gone about his expensive brillian=
ce. And this elected official wants to purchase the power grids and bureauc=
ratically manage the utilities? I say "no." If we don't show some leadersh=
ip in Sacramento soon, potential bond buyers will also say "no," unless the=
y receive an attractive interest rate. Just ask Edison International about =
attractive interest rates. It just subscribed $800 million in bonds paying =
14 percent. Tragically, Gov. Davis walked into his position with an existin=
g budget surplus and now has no tangible legacy to show for it. No reserves=
. No improved highways. No new schools. No infrastructure improvements. Onl=
y interest payments. Wasn't that Citron's legacy? If amortized over 10 yea=
rs at 6 percent, the citizens of California will pay an additional $4.4 bil=
lion in interest costs. Over 15 years it's $6.7 billion. And therein lies t=
he true legacy of Davis, squandering the entire budget surplus that he inhe=
rited on interest resulting from his indecisiveness and lack of leadership!=
It is so tragic that the perpetrator of this colossal mess is still in de=
nial and continues to play the "blame game." Orange County played the "blam=
e game," too. But it had obvious perpetrators and succeeded in a court of l=
aw in securing a significant amount in retribution payments. I'm not so sur=
e California will have a similar result. =09