Although this week’s presidential meeting is likely to complicate California’s embroiled political landscape, Republican state legislators are convinced that a bipartisan, wide-ranging deal is still possible without state transmission grid ownership or another utility bankruptcy. It would involve discounts by generators of past-due billings, amounting to billions of dollars. Ultimately, a key adviser to the Republicans said Tuesday, all civil suits against the merchant generators would have to be dropped, something Gov. Gray Davis has adamantly resisted publicly.

In essence, this feeling that a political solution is still ultimately viable is what underlies the Republicans’ alternative plan released last week. Meanwhile, many Democrats, who control both houses of the state legislature, have indicated that proposals to implement Davis’s transmission buyout deal with Southern California Edison are not viable at this point, and some think bankruptcy by the utility may be the best outcome.

On the other hand, a Texas-based generator would not comment on the Republican alternative because state Democratic legislative leaders had already designated it as “DOA,” a Houston-based spokesperson for the generator said.

Both lawmakers and the governor’s office have told the Republicans that they “are not wedded to the idea of the state taking over the grid,” the Republican adviser said. “We can’t find anyone who is really championing the grid plan in any real serious way.”

The bigger obstacle to a grand settlement in the immediate future is that a number of leaders in the state Senate think bankruptcy for Edison might be the preferable path, the legislative insider said. How much of a negotiating ploy this may be is unknown at this time.

“We have talked to three of the five major generators and they are all ready to come to the table with a haircut,” said the legislative source. “They want to get this behind them and have some security and surety about the market in the years ahead. And they are willing to contribute hundreds of millions of dollars in concessions, but they want it to be in the context of a global settlement and look at all the issues — not just the Memorandum of Understanding — covering all positions. “The generators want to see a deal that says something about PG&E, and they want it to cover Sempra’s under-collection. They also want it to be quick, within the next couple of months. And they want a deal that will be bipartisan and hold together.”

While no one is saying how politically realistic any of the Republicans’ schemes may be, Sacramento observers agree that several current sticking points will have to be untangled before a deal is struck:

When the time is right and there is something all-encompassing on the table, the Republican source said, “(Enron’s) Ken Lay has indicated he can rally all of the generators to sign off on the deal (including the haircuts).”

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