California 6/13 ,
 Executive Summary
-CPUC rules that SoCal must pay 15% of debt to QFs (approximately $50 million)
-Ruling heightens likelihood of voluntary bankruptcy filing by SoCal
-Voluntary filing further heightened by successful ring-fencing by EIX parent
-Bankruptcy judge firm in support for QFs

Report

1. SoCal Loses CPUC Ruling, But Retains Appeal Option

As you may have seen, Bloomberg reported that the CPUC voted 5-0 to force 
SoCal to make 15% of its payments owed to alternative energy producers in 
California.  CPUC rules allow 30 days to appeal its rulings, leaving a window 
open for SoCal to buy more time.  

2. Voluntary Filing In?

With regard to a SoCal bankruptcy filing, the key now is how SoCal's board
feels about progress rather than deadlines with creditors.  In other words,
sources believe that a voluntary filing is more likely than an involuntary
filing.  A continuing lack of progress on a bailout and an increase in the
number of liens filed against SoCal is more likely to make the SoCal board
want to file for bankrutpcy voluntarily.  The recent ring-fencing by Edison 
International reflects their need to pay off cross-default risk and to cut 
ties
in their bank facility between the parent company and lines of credit helds 
by SoCal.
 In and of outself, it does not necessarily signal an imminent filing.

3. Involuntary Out?

Sources indicate that the unsecured financial creditors are not
considering a filing against SoCal.  This is because the financial creditors
believe that they would still be worse off in bankruptcy.  Sources report
that in creditor discussions, there has not been talk of the debt holders
not being paid.  "People have talked about screwing the generators and
everyone else, but not the debt holders," a source commented.

The QFs are unlikely to file against SoCal because they have fairly good
contracts in place.  Also, they receive high capacity fees in the summer
(these fees vary seasonally and are distinct from generating fees).  These
capacity fees are calculated on a rolling, 4-year basis and will be
re-calculated next year.  The QFs want this summer included in the
recalculation, incentivizing them to keep their contracts in place.

4. Montali Supporting QFs

Judge Montali, by his recent rulings, is sending a signal that he is
concerned for the QFs and is sensitive to their hardships.  He is trying to
help them through his rulings.  For example, as long as QFs remain on line,
those who petition can receive additional payments from PG&E.  Over a
4-month period, these payments equal 20% of the QFs' pre-petition claims.
This provides the QFs incentive to remain connected to PG&E.

5. GE Looking to Restructure Generating Capacity Financing

General Electric is reportedly "deeply concerned" about the stability of
financing generating capacity in the US.  (GE has over 70% of the gas
turbine market.)  GE is reportedly trying to keep its margins down and is
not raising its prices due to concerns about instability.  Sources believe
that a very significant percentage of generating capacity financing will
have to be restrucured in five years.
john.lavorato@enron.com, louise.kitchen@enron.com