California's $12.5 Bln Bond Sale May Be Salvaged, Official Says
Sacramento, California, Oct. 10 (Bloomberg) -- California's $12.5 billion bond sale to cover energy costs may win approval if Governor Gray Davis agrees to seek revisions of existing power contracts, a state regulatory official said. 
The bond sale stalled last week when the California Public Utilities Commission voted 4-1 against a plan to repay the state's power costs using utility rates. The commissioners favor another approach, opposed by Davis, that would give them more authority over the state's $43 billion of power contracts. 
Some commissioners ``would probably be amenable to the rate agreement if there was movement on the governor's part to renegotiate those contracts,'' said Geoffrey Brown, who was appointed to the PUC by Davis. ``We're not just sitting around waiting for the sky to fall. There's got to be some give here.'' 
Moody's Investors Service on Friday said California's $31.6 billion of debt may be downgraded for the second time this year, in part because of the delayed bond sale. California's budget deficit in fiscal 2003 may reach $9.3 billion if energy costs aren't repaid, state Treasurer Philip Angelides said. 
The state has spent $10.4 billion since January buying electricity on behalf of PG&E Corp. and Edison International utilities, which are insolvent. 
Davis `Willing to Discuss' 
``It takes two to tango and we are certainly willing to discuss the contracts,'' said Steve Maviglio, the governor's spokesman. 
Davis will consider Brown's offer, ``especially in context'' of any refunds from generators that may be ordered, Maviglio said. State officials claim power generators have charged too much, and are asking federal regulators to order refunds. 
Power generators are ``willing to discuss it, but I wouldn't want anybody to have any false promise or hope that any enormous change will come from this,'' said Gary Ackerman, executive director of the Western Power Trading Forum, a group representing power sellers. Any companies willing to talk ``might want something else in return, and who knows what that might be.'' 
The planned bond sale, the largest municipal debt sale in U.S. history, would repay the state's general fund for a $6.1 billion power loan and cover other power costs. The sale has been delayed by the disagreements among state leaders. 
`A Blank Check' 
Under state law, the PUC is required to provide enough revenue from consumer rates to meet the bond payments and cover power contracts. The Department of Water Resources, the state agency buying the power, has sole authority to determine its revenue needs. 
PUC President Loretta Lynch and others said an irrevocable financing order would make it difficult for the state to renegotiate power contracts. They also said the DWR has been given too much authority. In the past, the PUC has set utility rates. 
``It gives a blank check to the DWR for anything that they want to do going forward,'' said California Senate President Pro Tempore John Burton. 
The commissioners favor a plan to back the bonds with a surcharge on utility customers' bills. The proposal would let the PUC review the water department's revenue requirements and require a public hearing on the allocation of costs among the utilities. Davis opposes that plan. 
``It's dead on arrival. It's still going to be vetoed,'' said Maviglio. The governor has until Sunday to sign or veto all the bills sent to him during the last session. 
The new plan would expose the state to breach-of-contract claims, the governor's office said in a statement last week. The state agreed with power generators to pay energy contracts before repaying the bonds. Making a change now ``would eliminate the security on which the power sellers relied'' the governor's office said in the statement. 
Critics of the long-term power contracts say the state's economy will be hurt by above-market costs for years to come. 
No matter which approach the state takes, ``the government ought to try to renegotiate the contracts anyway,'' Burton said. ``And some of the generators have said they're willing to do it.''