california update 4 27 01 following report contains confidential sensitive information please treat discretion executive summary ferc price cap decision reflects bush political economic objectives politically bush determined let crisis blame fall davis economic perspective unwilling create disincentives new power generation davis finds four major flaws ferc plan notably exclusion state generators june lst kill clause ferc order could coincide new bush regional plan california facing growing fiscal risk following bond downgrade expected 20 billion power bill summer economic crisis would force deeper administration involvement qf bid advance payments pg e likely fail bankruptcy court new generation delays probable state qf squabbling consumer groups preparing constitutional challenge socal bailout deal 1 ferc fallout ferc decision holding move bush administration looks like action rather allows situation california continue develop virtually unabated political strategy appears allow situation deteriorate point davis escape shouldering blame politically inoculated administration begin look regional solutions moreover administration already made explicit certainly restate forthcoming cheney commission report opposition stronger price caps grounds unwilling create disincentives construction new generation interesting ironic note electricity generators generally happy ferc order ferc commissioner favors price caps actually voted plan 2 something less effective price caps davis point view ferc plan four major flaws order applies california rest west non california generators required sell capped rates california order written price floor emergency power ceiling state officials also believe energy suppliers continue game system price mitigation scheme kicks stage 2 emergency require collusion even price caps kick based cost plus highest cost producer supplying power california require wholesalers abide cap generators also charge cap provided subsequently justify excess charge ferc 3 proposal kill clause adds political dilemma davis ferc proposal includes kill clause says caps withdrawn unless california iso agrees june lst become part regional grid ferc control davis sign regional grid june lst live june 2 nd headlines blaming letting bush price caps plan collapse 4 growing fiscal risk california sources speculate california could therefore pay much 20 billion power summer combined enterprise value pg e sce sources believe severity situation ferc federal government forced take action control prices power consensus state california run money 90 days one first projects cancelled state plans finance new power plant construction exchange long term power deals bleak fiscal picture also causing bank creditors revisit bridge loans providing california bush administration fed waking seriousness fiscal picture country largest prosperous state gone large surpluses serious debt downgrades devastating deficits matter months 5 qfs seek advance payment pg e meanwhile bankruptcy front qfs reportedly ask bankruptcy judge today give advance payment pge accounts since natural gas vendors likewise demanded advance payment gas appears unlikely qfs request granted qfs receive advance payment likely 4 000 mw gas fired qf capacity remain offline 6 delays likely new qf generation qf deals made state long term contracts continually renegotiated likely mean new plants contracts supposed finance online early anticipated 7 consumer groups ready challenge constitutionality sce bailout plan harvey rosenfield colleagues reportedly reviewing analysis mou sce bailout plan analysis done utilities analyst rather lawyer though appears raise number good legal points example one elements mou non bypassable charge ratepayers would require pay even disconnect grid effectively tax since exchange value money ca constitution used directly benefit private entity makes bonds would issued general obligation bonds rather revenue bonds according constitution state put debt benefit private company reasons even republicans would vote sce bailout remains unlikely bailout probably would stand likely constitutional challenge 8 governor hurt continued failure disclose long term power contracts issue governor failure disclose details long term power contracts continues distress players crisis even disclose everything staff negotiating likely actions negotiations challenged creating even delay