Subject: california update 6 / 14 / 01
executive summary
? bankruptcy fears mount with absent mou or plan b
? california puc wagers the promise of qf payments
? socal ring fencing
? california budget having problems
bankruptcy fears & plan b
sources are becoming more pessimistic regarding the prospects for a state bailout of socal . at this time the negotiations on plan b appear to be in danger of falling apart . the governor ' s efforts to position the legislature to take the blame if socal files ( due to lack of movement on the mou ) and senator burton ' s hostile response that the governor is the one responsible for delays is a sign that sentiment toward working for a bailout may be disappearing . it now appears more likely that a plan b alternative to the mou will not be reached due primarily to a failure to achieve consensus on how to spread the burden of the dedicated rate component . this could likely lead to a socal bankruptcy filing in the foreseeable future and as sources note , parties to the crisis are not optimistic about reaching a deal .
cpuc moves to pay qfs
according to media reports on the cpuc qf payment plan , socal ' s payments to qfs are contingent on the legislatures ' approval of the mou . in a move to publicize their cooperation and facilitate this process , today the cpuc passed three of the four mou provisions set by davis / socal ed negotiations and promised to examine the last provision at their june 28 th meeting . thus , with the cpuc posing no hindrance to stabilizing socal ed . , the legislature will bare the burden of debating the mou or plan b . sources report that if it appears that no legislative solution can be achieved , the qfs could file involuntary bankruptcy against socal . yesterday ' s decision raised the state ' s price cap on the qf ' s substantially , and ought to help increase production . so once again , price caps have kept crucial power generation assets off the market . sources note that the qfs contracts with socal now have cancellation clauses built into them in the event of socal filing involuntarily - this is something the qfs learned from the experience of pg & e ' s filing and judge montali ' s subsequent rulings . the financial question about these payments to qfs is less whether they will in and of themselves bankrupt edison , than it is whether other creditors force edison into bankruptcy rather than see that money leave the building . the sums in question are not huge , an absolute maximum of $ 50 million , but we are told some bondholders may well consider $ 50 million to be a sum worth fighting for .
ring fencing
edison international ( eix ) has issued a $ 1 . 2 billion bond via its mission energy subsidiary , proceeds of which will be used to pay off certain credit lines with banks . sources report that paying off these credit lines will negate cross - default clauses in those lines , and insulate eix from the effects of a bankruptcy at southern california edison . this is exactly what pg & e did a few weeks before filing chapter 11 , and has further convinced a lot of people that the game plan at eix includes letting sce file and restructure in bankruptcy rather than outside of it . sources comment that when judge montali approved large bonuses for pg & e senior management after pg & e ' s filings , it made bryson and members of his team " reconsider " the merits of bankruptcy .
california state budget :
day - to - day stress relief notwithstanding , the california state budget is still a shambles . more than $ 8 billion has been paid to power generators , depleting a political treasure chest which was going to be doled out to special interest groups for years to come . the only hope for the state comes from the issuance of $ 12 . 5 billion in " power bonds . " financial market participants are still questioning whether the state of california is illegally declaring itself to be a senior creditor of the one ( soon probably two ) bankrupt utilities . by declaring that cpuc rate hikes be directed first to holders of " power bonds " rather than general creditors of the utilities , the state is saying that the money they spent buying power " on behalf of the utilities " is a senior claim . the state treasurer phil angelides has given repeated assurances that this is so , and will likely do so again in a conference call next tuesday , but concern about this opinion reportedly dampened enthusiasm for a $ 1 billion g . o . bond california issued this week . one highly respected sacramento columnist said this week that the " power bonds " are no better than 50 - 50 to get issued at all .