california 02 / 16 / 01 pt . 2 our source reports the following regarding today ' s developments . in sum , due to the governor ' s sudden panic and resultant willingness to negotiate , all parties are in a wait - and - see mode that makes it unclear whether or not there will be an involuntary bankruptcy filing early next week . our consensus view is that bankruptcy is still the most likely outcome , but the timing is subject to the ups and downs of these negotiations over the weekend . creditors , especially the small ipps are close to the end on forbearance and highly frustrated with the erratic nature of the negotiations .
the events given in this report are chronological :
- the original plan proposed by governor davis to the utilities this morning contained the following points :
the parent companies of the utilities would have to return to their subsidiaries $ 1 . 5 billion . this money was originally tranferred to the parent companies ostensibly so that the parents could use it to pay taxes . however , as was revealed in the audit , this money was in excess of what was needed for taxes in reality .
the state would purchase the transmission assets for $ 3 . 5 billion .
it was proposed that the utilities would issue bonds to pay for the utilities ' undercollection . these bonds would be secured against a " distribution charge " added to power bills . this money would be collected by dwr and transferred to the utilities , thereby involving the state , but with less than a " full faith and credit " commitment .
- in contradiction to preliminary reports that appeared in the press , this plan was rejected by the utilities . one reason for this rejection was the low price on the transmission assets .
- while the bondholders pressed for further negotiations at this point in order to see if a deal could be reached ; this is because the bondholders are less impaired than the generators . the generators , however , demanded that they be paid the money they are owed and threatened to move quickly toward an involuntary bankrtupcy filing .
- local sources report that governor davis " panicked " at this point . he then offered to purchase the transmission assets for $ 6 billion ( almost twice the earlier offer ) and pay the generators ' undercollection ( which amounts to $ 9 to $ 12 billion ) . reportedly , the suggested term of the bonds that would be used to pay for this bail - out was 15 years , which would nearly double the actual cost of the bail - out . this plan would be put forward as a emergency legislative bill .
- at this point , consumer advocate harvey rosenfield entered into negotiations with the state treasurer ' s office . rosenfield threatened that if the governor managed to pass this plan , he would start a referendum to counter it . rosenfield would have up to 90 days after the emergency bill was passed to put his referendum in place . knowledgeable sources advise that it would be " very difficult " for the bonds in the plan to be issued in less than 90 days ; therefore , rosenfield poses a credible threat .
- in subsequent negotiations , governor davis has offered to purchase the transmission assets for a price of at least $ 6 billion , but possibly as high as $ 12 billion .
- senator president pro tem john burton is ' very upset ' with the governor for giving in on his negotiations so easily .
- mike florio , another consumer advocate , contacted gov . davis and said that the idea of negotiating a bail - out , as it appeared davis intended to do , was " ridiculous . " florio and the other consumer advocates threatened to ally themselves with rosenfield and support the referendum if davis pursued such a course of action . the consumer advocates strongly feel that the generators have to " take a hair cut " as part of the solution , as well .
- the governor will announce later this afternoon a " framework " solution identical to that we have reported previously - a state purchase of transmission assets and an issuance of bonds by the utilities , but with state support through the dwr . however , the state government has yet to reach consensus on the numbers in this framework , and it remains unclear whether the framework will be acceptable to all parties .
- with this announcement , the bondholders may refrain from an involuntary filing in order to see what the terms of the final agreement will be . the generators , while more inclined to file themselves , may feel that they have put enough pressure on the governor that it may be worthwhile to wait and see , as well . they are interested not only in the terms of the agreement ( and particularly the amount paid for the undercollect ) , but also in the terms of the long - term power contracts that the state must negotiate . for example , if the state is willing to purchase power at high prices in order to placate the generators , they would be very likely to go along with the plan .
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california 02 / 16 / 01 pt . 2
our source reports the following regarding today ' s developments . in sum , due to the governor ' s sudden panic and resultant willingness to negotiate , all parties are in a wait - and - see mode that makes it unclear whether or not there will be an involuntary bankruptcy filing early next week . our consensus view is that bankruptcy is still the most likely outcome , but the timing is subject to the ups and downs of these negotiations over the weekend . creditors , especially the small ipps are close to the end on forbearance and highly frustrated with the erratic nature of the negotiations .
the events given in this report are chronological :
- the original plan proposed by governor davis to the utilities this morning contained the following points :
the parent companies of the utilities would have to return to their subsidiaries $ 1 . 5 billion . this money was originally tranferred to the parent companies ostensibly so that the parents could use it to pay taxes . however , as was revealed in the audit , this money was in excess of what was needed for taxes in reality .
the state would purchase the transmission assets for $ 3 . 5 billion .
it was proposed that the utilities would issue bonds to pay for the utilities ' undercollection . these bonds would be secured against a " distribution charge " added to power bills . this money would be collected by dwr and transferred to the utilities , thereby involving the state , but with less than a " full faith and credit " commitment .
- in contradiction to preliminary reports that appeared in the press , this plan was rejected by the utilities . one reason for this rejection was the low price on the transmission assets .
- while the bondholders pressed for further negotiations at this point in order to see if a deal could be reached ; this is because the bondholders are less impaired than the generators . the generators , however , demanded that they be paid the money they are owed and threatened to move quickly toward an involuntary bankrtupcy filing .
- local sources report that governor davis " panicked " at this point . he then offered to purchase the transmission assets for $ 6 billion ( almost twice the earlier offer ) and pay the generators ' undercollection ( which amounts to $ 9 to $ 12 billion ) . reportedly , the suggested term of the bonds that would be used to pay for this bail - out was 15 years , which would nearly double the actual cost of the bail - out . this plan would be put forward as a emergency legislative bill .
- at this point , consumer advocate harvey rosenfield entered into negotiations with the state treasurer ' s office . rosenfield threatened that if the governor managed to pass this plan , he would start a referendum to counter it . rosenfield would have up to 90 days after the emergency bill was passed to put his referendum in place . knowledgeable sources advise that it would be " very difficult " for the bonds in the plan to be issued in less than 90 days ; therefore , rosenfield poses a credible threat .
- in subsequent negotiations , governor davis has offered to purchase the transmission assets for a price of at least $ 6 billion , but possibly as high as $ 12 billion .
- senator president pro tem john burton is ' very upset ' with the governor for giving in on his negotiations so easily .
- mike florio , another consumer advocate , contacted gov . davis and said that the idea of negotiating a bail - out , as it appeared davis intended to do , was " ridiculous . " florio and the other consumer advocates threatened to ally themselves with rosenfield and support the referendum if davis pursued such a course of action . the consumer advocates strongly feel that the generators have to " take a hair cut " as part of the solution , as well .
- the governor will announce later this afternoon a " framework " solution identical to that we have reported previously - a state purchase of transmission assets and an issuance of bonds by the utilities , but with state support through the dwr . however , the state government has yet to reach consensus on the numbers in this framework , and it remains unclear whether the framework will be acceptable to all parties .
- with this announcement , the bondholders may refrain from an involuntary filing in order to see what the terms of the final agreement will be . the generators , while more inclined to file themselves , may feel that they have put enough pressure on the governor that it may be worthwhile to wait and see , as well . they are interested not only in the terms of the agreement ( and particularly the amount paid for the undercollect ) , but also in the terms of the long - term power contracts that the state must negotiate . for example , if the state is willing to purchase power at high prices in order to placate the generators , they would be very likely to go along with the plan .
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