PETER COOK: As the California Public Utilities Commission prepares to vote in the next few weeks on its newly proposed rate agreement with the Department of Water Resources, ENL's Kym McNicholas has more on what the investment community has to say about some of the issues raised by the deal. She joins us now from our West Coast Bureau with more on that. Kym?

KYM MCNICHOLAS: Thank you Peter, well, Joseph Fichera, he is the CEO of Saber Partners, he joins us now live from New York. He had played an active role in helping the state get back on the road to recovery after last year's energy crunch. Joseph, thank you so much for joining us.

MCNICHOLAS: First of all, what's your overall impression of the proposed rate agreement between the California Public Utilities Commission and the California Department of Water Resources.

FICHERA: Well, I think the new agreement is going to make creditors nervous and I think creditors are both potential bond investors as well as people who sell power to the state. What should be a very simple straightforward mechanism in order to make sure that the bills are paid on time now and in the future has turned into a very complicated policy debate between the Department of Water Resources and the Public Utility Commission and the Governor and others and that will lead to greater uncertainty, uncertainty leads to possible disputes in the future, disputes could lead to lack of timely payment and I think people will be very concerned about all the things that are in this agreement that should not necessarily be resolved in this agreement but outside of the case and this should be just focusing on trying to get a security instrument that is going to get the lowest cost of funds to ratepayers for the power that was bought on their behalf and for the bonds that will be sold to pay back the state. I don't think that's the primary objective of this document. There's a lot of other things going on here and I think that makes Wall Street nervous.

MCNICHOLAS: So my understanding is that the investment community is not pleased with this new rate agreement?

FICHERA: I'm sorry, is not what?

MCNICHOLAS: So they are not pleased with this new rate agreement?

FICHERA: Well, I think we are at the wait and see, we are going to wait to see how the rating agencies ultimately come out, we are going to look to see for further documentation and clarification- it continues to evolve- there's been, I think this is maybe the fourth version of a rate agreement that has come out between the PUC and DWR, so there's no reason to think that this is the last version.

MCNICHOLAS: So is there anything you would like to see in particular in this rate agreement that is not there right now?

FICHERA: Well, I think from an investors' standpoint they'd like to see some more explicit state pledge of non-interference - that they will never be able to do anything that will impair the bonds or impair going forward in terms of the repayment. I think they want to have a more rapid adjustment of rates in order to pay for any shortfalls. They don't want it to get mired into the traditional highly litigious ratemaking process of the past. This has got to be simple, straightforward - the model should be what the PUC did back in 1996 when it sold Rate Reduction Bonds and what the Texas Commission who I also work for just did last week with some transition bonds- you want to try to get as close to that model as possible, something that is highly secure, understood by investors and will get the lowest cost of funds. We'd like to see more simplicity and more automatic nature. Keep it out of the political debates.

MCNICHOLAS: And something that could potentially bring more uncertainty back into the market as to the issuance of the 12.5 billion dollars of consumer backed energy bonds is - on the one hand you do have that rate agreement that could pave the way for those bonds to be issued, but on the other hand there are some more questions about the CDWR's revenue requirement.

FICHERA: Yes, as a matter of fact the revenue requirement is the actual bill that is submitted and the rate agreement is simply the mechanism of how that bill gets paid. The bill has been called into question by PG&E in a lawsuit that they filed last August saying that the Department of Water Resources didn't follow the proper procedures in coming up with the exact amounts. They wanted public hearings, they want something they called the Administrative Procedures Act within California, they wanted DWR to fall under that. A judge just ruled, as I understand, yesterday or the day before yesterday, that PG&E's lawsuit could proceed, that the DWR was subject to the Administrative Procedures Act. If that holds up, that means potential further delays in terms of the actual dollar amounts that DWR could collect- they may have to go through a more time consuming procedure. Now, in litigation you never know how it is going to come out, but it does ... This specific litigation, in terms of the timing of what people want to get these bonds issued and want to get them paid back- could delay that, and it also gives probably PG&E some sort of hand in any negotiations of settlement. PG&E has sued also on a takings clause with regard to other legislation about selling of their power plants and it is a constant battle here and I think what ultimately needs to be done to move this rapidly is to get the parties into a settlement discussion where all matters are done once and for all. But I don't think that's on anybody's agenda right now.

MCNICHOLAS: Thank you so much, Joseph Fichera, he is the CEO of Saber Partners. Back to you Peter.