CALIFORNIA UPDATE - 10/02/2001 ,
 For questions or comments regarding this report please contact G. Britt Whitman at ex:5-4014 or Kristin Walsh at ex:3-9510.

EXECUTIVE SUMMRAY
?	CPUC Settles Filed Rate Doctrine Case with SoCal
?	CPUC Kills DWR Rate Agreement, Davis May Reconsider Old Senate Bill
  

CPUC - SoCal Suit
In a closed hearing today, the California Public Utilities Commission voted 5-0 to settle its filed rate doctrine case with SoCal Edison.  The implications could save SoCal from an otherwise immanent bankruptcy, though bankruptcy remains a real threat.  Under the agreement, the CPUC has stipulated the following points, which have not yet been formalized by Administrative Law Judge, Ronald Lew:

?	The CPUC agrees to maintain a level of rates necessary for SoCal to pay off under-collect through 2003.

?	All surplus revenue (revenue above O & M) generated from any source must be applied to SoCal's back debt.

?	SoCal agrees to pay no dividends on its common stock from now until 2003, or until all back debt has been recovered.  If SoCal's debt has not been recovered by 2003, the CPUC will extend appropriate rates levels necessary for SoCal to recover its debt through 2004.  Dividend payouts on SoCal common stock will be subject to CPUC approval during this extension.

?	100% of any revenue SoCal receives/generates from FERC/generator refunds will be applied to SoCal's debt.

?	Once SoCal's back debt has been recovered, any surplus revenue generated from the CPUC rate hikes will be refunded to ratepayers.

CPUC - DWR Rate Agreement
The fact that the PUC voted down the DWR rate agreement (by a 4-1 margin) puts Governor Davis and Treasurer Angelides in a very awkward position.  This leaves Senator Burton's bill, SB 18XX, as the vehicle that sets to payment path for the revenue bonds to repay the General Fund.
 
However, as late as this morning, Governor Davis vowed (through his spokesman) that SB 18XX was "dead on arrival" and would be vetoed.  This move by the PUC puts pressure on Davis to sign SB 18XX in order to protect the bonds and the long-term power contacts he has negotiated.
 
However, 18XX violates the terms of a number of the long-term power contacts negotiated by the governor earlier this year.  For example:
 
?	SB 18XX splits the revenue streams for payment of the General Fund's revenue bonds and payment to the DWR for power.  It clarifies the funds that will go to repay the General Fund, but is much less clear on the funds to pay the DWR for power.  SB 18XX leaves the long-term contracts signed by the governor open to review and renegotiation - something that the governor remains publicly unwilling to do.

?	SB 18XX also violates the terms of the bridge loan the state negotiated with Shearson Lehman earlier this year.  The terms of the bridge loan explicitly state that if 18XX is passed, the banks can accelerate the loan or impose penalty terms of interest on the state.  These terms were suggested by the governor as a means of forcing the legislature to support his DWR rate agreement rather than Burton's.  Of course, this effort failed when the legislature easily passed SB 18XX.  Today's PUC action further complicates the situation.
 
While on the surface this would seem to force the governor's hand into signing SB 18XX, that may not, in fact, happen.  It would not be out of character for the governor to instead veto SB 18XX, then force either the legislature or the PUC to "play ball" with him in order to repay the General Fund.  Thus, another leverage point has been created.  We will continue to monitor the situation to attempt to determine the likelihood of Davis signing or vetoing SB 18XX.
david.delainey@enron.com, louise.kitchen@enron.com, john.lavorato@enron.com