california update 3 06 01 executive summary comprehensive deal reached april 9 th chances bankruptcy increase due one day opt clause long term power contracts pg e state locked tough negotiations several issues table puc imposed requirement forcing pg state 2 3 times book value vs pg e 4 times book value pg e use 1 b secured last week help ailing utility davis announcement long term power contract include details 8 800 megawatts secured far 6 000 available summer long term contracts really three months none contracts prevent california buying peak demand spot market one day davis announced long term contracts davis also quietly announce 10 rate hike ferc may wild card approving deal pg e transmissions deal one thing still uncertain pg e bankruptcy may still likely alternative current negotiations buy pg e share electric transmission grid fail produce deal april 9 long term power contracts negotiated one day opt clause exercise unilaterally comprehensive solution reached state major utilities according sources close senior pg e officials pg e made clear hope politically acceptable deal transmission lines depends california government willingness make major financial commitment completely unwilling make pg e make final deal sell grid unless davis agrees relieve puc imposed requirement electricity buyer last resort current state regulations make utility companies ultimately responsible generating purchasing enough electricity times supply california energy needs long state steps makes purchases past three months utilities shielded absorbing losses generated paying premiums spot market power selling consumers shielded low rate ceilings pg e officials worried 1 summer supply 2 davis concern fast draining state budget surplus things get crunch summer davis makes new decision state pay electricity buys long term contracts pg e left holding bag thus part negotiations buying electricity grid pg e demanding comprehensive solution includes liable cost differentials spot market purchase consumers allowed pay state officials mood grant kind get jail free card two sides remain locked extremely tough negotiations complicated three factors 1 pg 2 state legislative demands price davis negotiate pg 3 ferc must positively approve grid purchase state california principal concern price front pg e wants sell electricity grid nearly four times estimated book value transmission consumer groups insist two times book value politically acceptable limit see 2 3 times book value absolute upper bound way pg e get whatever think according leader one main consumer groups going try force deals 2 0 case negotiators davis also trying proposition proof transmission deal protect later ballot proposal think ways price pg e part grid triggers ballot initiative remember davis eventual solution triggers ballot initiative running election ballot public initiative designed overturn solution sacramento front one understands pg e motives one question one sacramento figure kind game pg e playing three day period pg e made series announcements left everyone scratching heads late thursday pg e officials leaked information california papers agreed principle sell part electricity transmission grid state seemed like obvious good news made clear discussions price asking least 30 state currently offering deal still done anything like 10 billion pg e wants would hard get california legislature needs approve purchase late friday pg e officials announced secured 1 billion loan parent company electricity utility would use money pay bondholders creditors return 161 million shareholders new dividend payout cent money earmarked help struggling electricity orphan pg e left least one rating agency convinced company ready send utility bankruptcy previously understood weekend pg e leaked story claiming willing pay energy suppliers debt 15 cents dollar right generators make decisions morning whether start legal actions protect rights eventual bankruptcy action hold assumption politics process make whole couple months kind trial balloon extremely unnerving thus short time period pg e corporate owners showed could access public credit markets relative ease showed unwilling use funds smooth way toward solution energy crisis davis demanded major utilities absorb least part 13 billion debt accumulated since last summer pg e fund raising harden deepen demands one senior political official told source think corporate leadership company insulted us completely possible come something even outrageous pg long term contracts actually good three months none contracts however keep california buy expensive peak demand electricity spot market davis agrees new consumer electricity rate hikes next year media concern davis announcement long term contracts california less concern media davis quietly announced decision let rates rise electricity consumers state accept 10 emergency surcharge levied consumers january permanent increase well additional 10 increase consumers take effect early 2002 old 1996 rate cut legislation expires would bring average charge 8 cents kilowatt hour ferc major danger transmission line deal federal energy regulatory commission block deal simply failing approve positive vote senior california officials legislators doubt ferc jurisdiction believe ferc would dare stop deal may wrong deal go ferc specifically signs deal power transmission deal absolute matter anyone says according source close president three possibilities 1 ferc could pocket veto even putting agenda discussion 2 deal put agenda gets voted democrat commission william massey already said opposed 3 commission could approve condition davis agree bring lines regional grid system one complicating factor ferc decision however chairman curt hebert adamantly opposed transmission line sale may around long enough say hebert definitely shoo ferc chairman position says one washington official two appointments commission soon named official notes one could easily become chairman