california power 2 8 please contact kristin walsh x 39510 robert johnston x 39934 clarification executive summary utility bankruptcy appears increasingly likely next week unless state clear three hurdles agreement payback bailout rate increases short term funding dwr purchases power disagreement persists gov davis democrats legislature state paid back bailout utilities split stock warrant plan versus state ownership utility transmission assets economics long term contracts appear show rate hikes unavoidable need amortize undercollected rates utilities recent rate freeze period air quality management district regulations review offer limited scope providing additional generation capacity legislature democrats feeling intense pressure left wing consumer groups forced least slow stop davis bailout rate hike plans senator burton eminent domain threats generators reflect pressure little significance 1 bankruptcy outlook rising deal finalize debt workout continues beyond reach state utilities creditors time running debt forbearance arrangement set expire tuesday socal edison pg e paying bills except payroll working hard keep cash hand indicated feel close involuntary bankruptcy filing filing occurs 50 days either bankruptcy court accepts filing utilities file voluntary bankruptcy opinion within assembly divided respect outlook bankruptcy assemblyman keeley told source filing likely everything resolved 50 day period senator john burton hurry reach deal utilities believes state california good position strong arm utilities burton currently intend cede utilities avoid bankruptcy senator stated bankruptcy would bad worst thing possible intends stick position senator burton also dismissed governor davis end week deadline striking deal utilities still bankruptcy avoided last minute deal struck monday state receives return bailout scope rate hikes federal court expected rule pg e socal v cpuc rate undercollection case monday additional financing made available dwr buy power revenue bonds issued may possibility significant progress issues could lead extension creditor forbearance however negative tone taken standard poors others concerning delays legislature suggest forbearance difficult achieve previous forbearance period achieved via high level washington summit appear likely happen weekend additional financing dwr automatically approved legislature non energy expenditures california government risk yet rate structure place recover costs expended power general fund 2 state take 2 3 utility debt state seems succeeded forcing utility parents eat close one third 12 billion debt final deal held two fronts first still unclear state get return utility debt possible mix stock warrants transmission assets takeover transmission assets seems likely takeover hydro assets value assets still settled second state hook 9 billion clear mixture rate hikes revenue bonds used recover cost bailout finally expect davis california politicians work minimize rate hikes although edison pg e v cpuc case monday likely force hand everything possible avoid appearance bailout tangible transmission assets politically attractive nebulous stock warrants price set state would purchase utilities transmission assets currently valued approximately 7 8 billion proceeds though used pay utilities debts money would go existing bondholders however ipp sources advise already bid table transmission assets higher state would offer 3 long term contracts noted governor announcement tuesday 500 mw 5 000 mw power contracted come line immediately much remainder reportedly contracted long term purchases suppliers building power plants come line approximately two years assemblyman keeley expressed frustration received tablet high governor davis must rate increase means state must acquire power internal sources market long term contracts 7 39 cents kwh allows 1 213 cents amortize socal edison undercollection recent rate freeze period number slightly different pg e assumption based natural gas price 7 90 2001 5 15 2005 efficiency heating rate 10 000 12 000 2001 7 200 2005 numbers quoted industry sources felt unrealistic sources quoted 2001 price natural gas 9 00 9 50 sources agreed keeley number 2001 efficiency heating rate felt 7 200 2005 optimistic unless enormous amount new generation capacity comes line according keeley numbers assuming filed rate case settled 7 billion rather 12 billion would take 5 6 years amortize utility undercollection settlement case need reached state figure much charge power order amortize undercollection however since assemblyman keeley numbers unrealistic rate increase necessary 4 air quality district exemptions bills introduced provide exemptions aqmd air quality management district regulations ab 20 x ab 28 x ab 31 x also republicans asking governor lift environmental regulations immediately site facility san jose denied local government currently contemplation loosening aqmd compliance restrictions legislature allow dirtier plants come line however might change means implementation southern california moving away use credits apparently drives cost gas fired power 5 democratic moderates pressured consumer advocates moderate left sen burton puc consumer activists afraid harvey rosenfield consumers movement initiative important perspective initiative puts far left position challenge defeat moderates next election thus democrats legislature feel pressured distance davis slow rate increases bailout 6 eminent domain would limited effect threats burton seize generation assets insure continued power supply limited apply california suppliers federal order would needed seize assets state suppliers also canadian suppliers bc hydro essentially untouchable 7 smaller ipps feeling squeeze many smaller ipps account approximately 2500 mw production appear within days running cash ab lx may amended possibly sometime week give smaller producers credit support