Other Factors

Credit, payback, scarcities r

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Paying the piper: California's bond rating reduced

♦ Standard & Poor dropped California's bond rating two notches, from AA to A+

■ Financial drain from continuing energy crisis

■ Mounting uncertainty in costs to state of current electrical power crisis

■ Likely long term detrimental effect on state's economy

■ State's ability to pay its debt has reduced

♦ Rating not reduced further because of

■ State's diverse economy

■ Proposed revenue bonds to reimburse state treasury

♦ Can reduce further if California does not make $ 10 Billion bond issue and pay off its energy-related debts

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Associated Press: Gasoline supplies are critical

• Supplies tightest for mid-April since U.S. government record-keeping began in 1963

• There is a shortage of reformulated gasoline that produces less smog and is required during summer

MTBE additive made from methanol, a derivative of natural gas _ Natural gas prices quadrupled Dec-Jan; MTBE reduced by 1/3 ■ California uses more MTBE-treated gasoline than any other state _ Gas-guzzling SUV sales boomed in 1999 and 2000

• Any kind of refineiy snag will be amplified

• Last winter, major refiners had to focus on filling heating oil shortage instead of replenishing gasoline supplies for summer

• Now many forced out of service to take care of maintenance that was put off to deal with the heating oil crisis

• Environmental restrictions make it difficult to build refineries; none constructed in the U.S. for more than 20 years

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A peculiar problem

• E.g., Magnetic Eneigy Ltd. has a working laboratory experiment Ct)P>1.0 device (a motionless electromagnetic generator - MEG).

* Solved basic EM system COP>l .0 theory.

• Two years more R&D necessary to finish, do production engineering and scale up for production.

» Immediate capital needed: $20 million.

* Negotiations with large capital firms:

■ Most have substantial capital committed to normal power community, long term.

■ MEL success thus costs them dearly in unrecovered funds.

■ They shoot themselves in the foot if they fund the MEG, since this is a "very disruptive" technology.

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