california power 1 / 19 / 00 executive summary :
sb - 7 x gives dept . of water and resources given legislative authority to
undertake short - term power purchases with no price cap through feb . 2 nd
new legislation ( ab - 1 x and sb - 6 x ) would seek ( 1 ) long - term contracts with 5 . 5
cent cap and ( 2 ) creation of california power and conservation financing
authority
the long - term contracts proposed in ab - 1 x are likely to be subject to
significant amendment and renegotiation prior to the feb . 2 nd expiration of
sb - 7 x .
the authority proposed in sb - 6 x would have bond issuance powers to finance
new generation capacity and conservation measures
negotiations under way on using bond authority for a utility
bailout - - utilities and state government split over debt obligations of
utility parents
state borrowing plans and power purchases create credit risks for state
treasury ; socal edison misses more payments
bush administration opposes price caps , but is supporting state efforts to
split pg we believe he then could be willing to guarantee or
issue
bonds to deal with the rest .
as one very senior california political leader explained , getting the utility
holding companies to eat a substantial part of the debt they owe themselves
is the key to solving the back debt problem without provoking widespread
public outrage about a " bailout " of private price - gouging companies with
taxpayer money . since 75 % of californians currently blame the utilities and
the puc for this crisis ( and only 10 % blame davis ) , this is a crucial
political stance for the governor .
but , of course , absorbing anything like $ 6 billion in debt would be quite a
shock to the seemingly healthy holding company and power - generating branches
of the two utilities , and they began spreading the word that they were quite
willing to accept bankruptcy . thus by mid - week , both
sides had pushed themselves toward a resolution in federal bankruptcy court
that would be a worst case solution for all sides : the country ' s economy
would
suffer from the resulting credit shock , the governor ' s political future would
suffer from the electricity rate increases almost certain to be mandated by a
bankruptcy judge , while most private sector legal authorities believe the
utilities corporate holding structure would ultimately be breached during
bankruptcy
procedures and they would end up having to absorb some significant amount of
the debt in the end . in addition , they would most likely face a state
government
determined to use state powers of condemnation to enter the power business in
a major way .
senator burton ' s sb 6 x legislation will strengthen those powers dramatically
to make this point quite explicit . it would set up a " california power and
conservation
financing authority , " with the power to issue bonds and invoke eminent
domain . it would finance new power plants , and " consider the feasibility and
public
interest of the state acquiring , operating , and maintaining transmission
facilities currently owned by investor - owned and municipal utilities . "
as we write this , all sides are trying to construct a path back down from the
bankruptcy ledge to safe ground , and there is no question the tone has
shifted
in the last 24 hours from macho confrontation to " maybe we ' ve run this thing
out as far as we can . " but as we have noted , the chance for miscalculation is
still quite high . there is no solution agreed to at this time , the stand - off
over how much debt the state government will absorb versus the utilities '
holding
company is continuing , and the technical fact of default still makes it
possible for some bank to trigger bankruptcy by demanding immediate
accelerated payment .
5 . default update - thursday
socal edison - $ 215 million default to california power exchange .
after edison failed to make a $ 215 m electricity payment yesterday , the
california power authority began seizing long - term contacts and reselling
them to recoup some of the money owed to generators . pg & e said it expects
its trading privileges at the cal . power authority to be suspended today ,
leaving them with only its generation from nuclear and hydroelectric sources .
while the ongoing wave of defaults has severely restricted pg & e ' s and socal ' s
ability to buy power , the department of water and resources will be able to
pick up some of the slack , at least in the very short - term .
the state itself may be getting into risky credit territory . the proposed
california public power authority would borrow in the neighborhood of $ 1 . 3
billion from the state general fund in advance of this year ' s expected fiscal
surplus , with the loan to be repaid by the authority from expected future
revenues . with near - bankrupt utilities and a freeze on rate hikes , it is
unclear where the revenues would come from . the amount borrowed and terms of
repayment will be no doubt examined very carefully by the bond rating
agencies .
5 . bush policies
as we reported on wednesday , the bush administration continues to demonstrate
little interest in getting involved in the california crisis .
president - elect bush surprised state leaders yesterday with his comments ,
which essentially said that excessive environmental regulation was the root
of the current supply shortage . bush and his top officials appear to be
unanimously opposed to long - term price caps .
however , there is one issue of considerable importance to the administration ,
according to a source close to a top bush economic advisor . there is
significant concern that pg & e ' s credit problems could cause gas suppliers to
stop shipments of gas through pg & e ' s pipeline . the risk would be that the
pipeline could " go dry " , causing significant and possibly dangerous
disruptions in california residences and businesses . to prevent this
problem , bush is working with davis on a proposal to split pg & e into separate
gas and electric companies . the gas company would be solvent , but the
electric company would go immediately into ch . 11 following significant
defaults .
california power 1 / 19 / 00
executive summary :
sb - 7 x gives dept . of water and resources given legislative authority to
undertake short - term power purchases with no price cap through feb . 2 nd
new legislation ( ab - 1 x and sb - 6 x ) would seek ( 1 ) long - term contracts with 5 . 5
cent cap and ( 2 ) creation of california power and conservation financing
authority
the long - term contracts proposed in ab - 1 x are likely to be subject to
significant amendment and renegotiation prior to the feb . 2 nd expiration of
sb - 7 x .
the authority proposed in sb - 6 x would have bond issuance powers to finance
new generation capacity and conservation measures
negotiations under way on using bond authority for a utility
bailout - - utilities and state government split over debt obligations of
utility parents
state borrowing plans and power purchases create credit risks for state
treasury ; socal edison misses more payments
bush administration opposes price caps , but is supporting state efforts to
split pg we believe he then could be willing to guarantee or
issue
bonds to deal with the rest .
as one very senior california political leader explained , getting the utility
holding companies to eat a substantial part of the debt they owe themselves
is the key to solving the back debt problem without provoking widespread
public outrage about a " bailout " of private price - gouging companies with
taxpayer money . since 75 % of californians currently blame the utilities and
the puc for this crisis ( and only 10 % blame davis ) , this is a crucial
political stance for the governor .
but , of course , absorbing anything like $ 6 billion in debt would be quite a
shock to the seemingly healthy holding company and power - generating branches
of the two utilities , and they began spreading the word that they were quite
willing to accept bankruptcy . thus by mid - week , both
sides had pushed themselves toward a resolution in federal bankruptcy court
that would be a worst case solution for all sides : the country ' s economy
would
suffer from the resulting credit shock , the governor ' s political future would
suffer from the electricity rate increases almost certain to be mandated by a
bankruptcy judge , while most private sector legal authorities believe the
utilities corporate holding structure would ultimately be breached during
bankruptcy
procedures and they would end up having to absorb some significant amount of
the debt in the end . in addition , they would most likely face a state
government
determined to use state powers of condemnation to enter the power business in
a major way .
senator burton ' s sb 6 x legislation will strengthen those powers dramatically
to make this point quite explicit . it would set up a " california power and
conservation
financing authority , " with the power to issue bonds and invoke eminent
domain . it would finance new power plants , and " consider the feasibility and
public
interest of the state acquiring , operating , and maintaining transmission
facilities currently owned by investor - owned and municipal utilities . "
as we write this , all sides are trying to construct a path back down from the
bankruptcy ledge to safe ground , and there is no question the tone has
shifted
in the last 24 hours from macho confrontation to " maybe we ' ve run this thing
out as far as we can . " but as we have noted , the chance for miscalculation is
still quite high . there is no solution agreed to at this time , the stand - off
over how much debt the state government will absorb versus the utilities '
holding
company is continuing , and the technical fact of default still makes it
possible for some bank to trigger bankruptcy by demanding immediate
accelerated payment .
5 . default update - thursday
socal edison - $ 215 million default to california power exchange .
after edison failed to make a $ 215 m electricity payment yesterday , the
california power authority began seizing long - term contacts and reselling
them to recoup some of the money owed to generators . pg & e said it expects
its trading privileges at the cal . power authority to be suspended today ,
leaving them with only its generation from nuclear and hydroelectric sources .
while the ongoing wave of defaults has severely restricted pg & e ' s and socal ' s
ability to buy power , the department of water and resources will be able to
pick up some of the slack , at least in the very short - term .
the state itself may be getting into risky credit territory . the proposed
california public power authority would borrow in the neighborhood of $ 1 . 3
billion from the state general fund in advance of this year ' s expected fiscal
surplus , with the loan to be repaid by the authority from expected future
revenues . with near - bankrupt utilities and a freeze on rate hikes , it is
unclear where the revenues would come from . the amount borrowed and terms of
repayment will be no doubt examined very carefully by the bond rating
agencies .
5 . bush policies
as we reported on wednesday , the bush administration continues to demonstrate
little interest in getting involved in the california crisis .
president - elect bush surprised state leaders yesterday with his comments ,
which essentially said that excessive environmental regulation was the root
of the current supply shortage . bush and his top officials appear to be
unanimously opposed to long - term price caps .
however , there is one issue of considerable importance to the administration ,
according to a source close to a top bush economic advisor . there is
significant concern that pg & e ' s credit problems could cause gas suppliers to
stop shipments of gas through pg & e ' s pipeline . the risk would be that the
pipeline could " go dry " , causing significant and possibly dangerous
disruptions in california residences and businesses . to prevent this
problem , bush is working with davis on a proposal to split pg & e into separate
gas and electric companies . the gas company would be solvent , but the
electric company would go immediately into ch . 11 following significant
defaults .