Subject: california update 2 / 12
executive summary :
the likelihood of there being an involuntary bankruptcy filing against the utilities appears to be greater than 60 % . this is not only due to the circumstances surrounding the filed rate doctrine case mentioned below , but also because the 30 - day cure period during which the utilities have not been paying their bills will end this week , increasing the likelihood that their ipp creditors will act against them . if the state loses the filed rate doctrine case today ( which it is believed will happen ) and there is an involuntary bankruptcy filing ( or even the threat of one ) , this bail - out plan will be enacted quickly .
1 . utilities vs . cpuc
governor davis ' attempt to delay the filed rate doctrine case will not succeed . the case will come before the judge on monday , february 12 th . the federal judge is expected to rule a summary judgment in favor of the utilities . however , the judge will not allow the utilities to collect the injunction release they are requesting ( $ . 01 / kwh ) . this will be left to an appellate court . the decision not to allow the utilities to collect this cash could trigger an involuntary bankruptcy filing , by the smaller ipps ( as noted in our reports last week ) or by larger out - of - state generators such as duke , reliant , and dynegy ( as noted in the press this morning ) . this is expected next week or the week after .
2 . prospects for a bailout
bill ab 18 x is effectively dead from lack of support .
senator burton , despite his public refusals , is moving closer to agreeing to a utility bail - out . the statements by burton and the ca state treasurer are merely a negotiating position . they are more concerned about the possibility of a bankruptcy than they appear . for burton , this is because of his long association with labor unions ; the unions oppose the utility bankruptcy .
burton has been negotiating with consumer advocate harvey rosenfield so as not to get attacked by him . the deal burton is expected to arrange would be for :
bonds to be issued by the utilities rather than the state , but with some kind of state support ( but less than " full faith and credit of the state of ca , " which would not pass ) . this would amount to the securitization of an extra charge on power bills ( e . g . $ . 01 , though the actual amount is not known ) . these bonds would be asset - backed securities , with payment receivable from rate payers . the term of these bonds is unknown ; if the term is made quite long ( e . g . 20 years ) , the associated rate increase could be very small .
the state would purchase the utilities ' transmission assets for a very high price . the amount of the extra charge on power bills will not be known until the price of the transmission assets is settled .
if the state loses the filed rate doctrine case today ( which it is believed will happen ) and there is an involuntary bankruptcy filing ( or even the threat of one ) , sources believe that this bail - out plan will be enacted quickly . as noted in an earlier report , the california legislature habitually does not act until things " hit the wall . "
it is expected that the republicans in the legislature will follow burton ' s lead and support the bail - out plan . the assembly members in particular are not yet supportive of a plan of this nature . one moderate democratic legislator with whom our source spoke said that the opposition to a bail - out in her central valley district is " 50 to 1 . " however , an involuntary filing ( or the threat thereof ) may be enough to trigger legislative support . it would allow the argument of an " imminent threat " to the people of the state of california .
3 . consumer opposition
harvey rosenfield is too short on cash to fight this plan and the associated rate increase with anything but a referendum . if the referendum fails , he intends to attack individual legislators ( though not john burton , who reportedly has " immunity " from rosenfield ) .
some legislators are thinking of voting for the bail - out plan , then supporting a referendum from rosenfield later . however , if the bail - out plan and rate increase described above is passed through the legislature as a bill ( rather than put in place by the puc , for example ) , it cannot be reversed by a referendum . as additional insurance against rosenfield , by supporting the bonds issued under the plan , the state can argue that its credit would be impaired in the case of a referendum to repeal the plan . while it is not clear that this is a factual argument , it still might impede any referendum .