Description of Engagement as Financial Advisor to the Governor of the State of California — March to November 2001

Saber Partners, LLC served as financial advisor to the Governor of the State of California from March 2001 through November 2001. The assignment focused on the capital markets, investment banking and “Wall Street” aspects of financing the State’s energy crisis. Saber Partners was not involved with the purchase of energy or in negotiating for the purchase of energy through contracts for the State. Also, Saber Partners was not involved in providing electricity to customers.

Technical financial advisory tasks performed were as follows:

1. Analyzed and advised the Governor on the level of customer rates required (i.e., the retail rate increase issue) and the amount of bonds to be issued to allow each California investor-owned utility to pay its outstanding debt obligations and to meet the costs of ongoing energy purchases by the State.
2. Provided assistance in analyzing and determining the “net short” position (that is, the difference between utility retail demand and the supply resources provided by the utilities’ retained generation and committed purchase contracts with Qualifying Facilities and other suppliers) facing the State and its effect on the financial needs of the State and the utilities.
3. Developed the content and strategy for electronic access and dissemination of financial information to the investment community on the State’s energy crisis.
4. Analyzed the financial effects (costs and effects on the credit-worthiness of the State’s investor-owned utilities) of a possible purchase of the transmission lines by the State to provide capital to the utilities to prevent or resolve bankruptcy issues.
5. Advised the Governor’s Staff on the expected capital market/Wall Street reaction to, and utility corporate structure issues raised by, the negotiation and structuring of the proposed Memoranda of Understanding (“MOUs”) with San Diego Gas and Electric (“SDGE”), Southern California Edison (“SCE”) and Pacific Gas and Electric (“PGE”) regarding the payment of the utilities’ outstanding debt obligations and the sale of their respective transmission systems.
6. Facilitated communication for the State with the Wall Street investment community and other members of the interested public on the State’s energy crisis plan.
7. Reviewed proposed legislation regarding the implementation of the MOUs, with particular emphasis on the capital markets issues. Recommended a dedicated rate component bond structure (whereby a small portion of each ratepayers bill would be “dedicated” to paying off debt incurred by the State in purchasing energy) to provide greater assurance to bond purchasers that the debt would be repaid in a timely fashion and, thus, result in a higher credit rating and a lower cost of funds.
8. Assisted the Governor’s Staff in facilitating negotiations between SCE and Qualifying Facilities involving the payment of back debt and setting future prices to resolve litigation and provide for the credit-worthiness of SCE.
9. Provided quality assurance and analysis of revenue requirements for energy purchases by the California Department of Water Resources (“CDWR”) to determine the impact of the revenue requirement on California utilities and their customers. Reviewed and analyzed for quality assurance, the output of the financial model used by CDWR to support its revenue requirement before the California Public Utilities Commission (“CPUC”). Reviewed output from the ProSym system generation model used by CDWR’s outside expert, Navigant Consulting.
10. Provided capital market advice regarding the structure and marketing of approximately $12.6 billion of municipal revenue bonds for repayment of the State’s general fund that had been used to fund energy purchases by CDWR.
11. Analyzed and advised the Governor on capital market reactions to CPUC rate orders.
12. Advised the Governor on the ability of the CPUC Rate Agreement to support the $12.6 billion of debt at the lowest cost of funds to the ratepayers.
13. Developed requirements for reporting to the Governor on the operating performance of the Electric Power Fund (i.e., the dedicated fund within CDWR into which electric revenues are paid and from which payments to suppliers and bondholders are made).