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California Power-Price Boost Not Needed, Agency Says (Update1)
By Daniel Taub


Sacramento, California, July 13 (Bloomberg) -- California regulators won't 
need to raise electricity prices for consumers to cover a planned $13.4 
billion bond sale, said a spokesman for the agency that buys power on behalf 
of the state's utilities. 

The California Department of Water Resources, which has spent more than $7.7 
billion on power this year, is expected to recommend a rate increase of as 
much as 25 percent, Dow Jones reported today, citing three unnamed members of 
the state's Public Utilities Commission. Oscar Hidalgo, a spokesman for the 
agency, said no rate increase is expected. 

``Our folks are stunned by this revelation because it is nowhere near what 
our numbers show,'' Hidalgo said. ``In fact our numbers show that there is no 
need for any increase beyond what's already been done.'' 

The Department of Water Resources will submit a report to the California 
Public Utilities Commission today or Monday with the state's revenue 
requirements for repaying a planned $13.4 billion bond sale, Hidalgo said. 
The bonds are to be repaid by customers of utilities owned by PG&E Corp., 
Edison International and Sempra Energy. 

The bond sales, the largest municipal offering in U.S. history, are scheduled 
to begin in September. Governor Gray Davis has said repeatedly that he 
believes the bonds can be repaid without further rate increases. His position 
hasn't changed, spokesman Steve Maviglio said today. 

Previous Increases 

In March, the PUC voted to boost rates by 3 cents a kilowatt- hour at the 
state's two largest utilities. Rates at PG&E's Pacific Gas & Electric, the 
largest California utility, would rise by as much as 36 percent and Southern 
California Edison rates would rise by as much as 27 percent, the PUC said at 
the time. 

The average consumer-price increase would be 30 percent, the PUC said. The 
increase, the second this year, was intended to help the state pay for power 
purchases. The PUC voted in January to raise rates about 10 percent. 

California Treasurer Philip Angelides has said that the bonds will let the 
state cushion the immediate rate impact on residents and businesses by 
spreading power costs over time. The debt will be repaid over 15 years. 

Investors have said they can't predict how the bonds will be received without 
knowing how much cushion is built into the revenue pledge backing the debt. 

Legislation that paved the way for the bonds allows the state to raise 
electricity rates as needed to cover debt repayment. That pledge, typical for 
revenue bonds, usually entails a promise to raise a specific level of money 
annually to cover interest and principal payments on the debt and provide an 
added cushion. 

That formula, known as a debt service coverage ratio, must result in 
investment-grade ratings for California's power bonds, according to the 
legislation. Investors want assurance that an issuer will raise rates to 
maintain the promised cushion, even if increases aren't needed at the time of 
the bond sale.