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Date: Thu, 26 Apr 2001 17:24:51 -0500
From: "Tracey Bradley" <tbradley@bracepatt.com>
To: "Justin Long" <jlong@bracepatt.com>, "Paul Fox" <pfox@bracepatt.com>
Cc: "Ronald Carroll" <rcarroll@bracepatt.com>
Subject: WRAP: Calif Turns To Lawmakers As Power Bond Deal Stalls
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WRAP: Calif Turns To Lawmakers As Power Bond Deal Stalls

Updated: Thursday, April 26, 2001 03:35 PM ET


By Jason Leopold


Of DOW JONES NEWSWIRES


LOS ANGELES (Dow Jones)--Frustrated by delays in securing regulatory 
decisions needed to support a massive issue of bonds to finance power 
purchases, California Treasurer Phil Angelides, Gov. Gray Davis and several 
lawmakers are working on an end run through the state Legislature.


The group is putting together legislation, aimed to be introduced in the 
state Assembly as early as Friday, that will directly authorize the state to 
sell $10 billion in revenue bonds - in the process clearing the way for the 
state to close on $4.1 billion in interim financing.


But there are pitfalls along that path as well, raising new questions about 
when the bonds will be sold. John Hallacy, managing director for municipal 
bond research at Merrill Lynch & Associates, said the bond market is still 
expecting the sale, but he's concerned that details on marketing of the bonds 
haven't been released.


Hallacy said if the bond sale is delayed it will be a problem for the state.


"Where will they get the money to buy power over the summer?" Hallacy said.

T
he state has been working since February to put together a bond deal 
authorized by previous legislation, but the effort has been hung up in part 
by the California Public Utilities Commission's difficulty carving revenue 
out of electricity rates to service the debt. The commission's standing 
proposal for calculating the so-called California Procurement Adjustment - 
the amount of electricity rate revenue available to the state - has been 
appealed by the state's struggling utilities, which argue the plan would 
leave them unable to meet their own obligations.


"The utilities effectively blocked the bond sale by appealing the PUC's 
action on how they calculated the CPA," an aide to Angelides said. "So now 
we're saying, 'Let's sell the bonds by revising the law and go to the 
Legislature to get what we need.'"


Legislature No Slam Dunk


Whether the legislative route proves more fruitful remains to be seen. As 
reported, Assembly Republicans said Wednesday that they wouldn't vote for the 
measure unless the governor releases details of the state's long-term power 
contracts, information the governor has thus far refused to divulge.


"Republicans believe it is fiscally irresponsible for the Legislature to ask 
ratepayers to shoulder the extraordinary weight of a $10 billion bond before 
the governor finally discloses what the ratepayers are getting in return," 
Assembly Republican leader Dave Cox, R-Fair Oaks, said in a press release.


The treasurer needs Republican support if the bill is to win the two-thirds 
majority it needs to be implemented immediately.


California has spent about $5 billion since mid-January buying power in place 
of the state's cash-strapped utilities, a total that is growing by about $70 
million a day. The state needs to move ahead with the bridge financing and 
bond deal to repay the state's general fund for power already purchased and 
to stretch out future power costs that can't be covered in full by 
electricity rates.


The situation is growing more urgent. Citing the "mounting and uncertain" 
costs of California's power crisis, ratings agency Standard & Poor's lowered 
the rating on California's general obligation bonds to A+ from AA. Further 
delays of the bond issue could put the state in a bind, S&P said.


"If the state cannot sell its proposed revenue bond as planned in a timely 
manner, the potential effect on the state's general fund could be severe 
without large further retail rate hikes beyond the sizable percentage 
increases recently implemented," S&P said.


Angelides has said that the state's budget surplus will be depleted if 
legislation isn't passed allowing his office to sell the bonds. In addition, 
the clock on the state's bridge financing deal is ticking. Commitments from 
bankers to fund the loan are due May 8, and the banks have said they won't 
sign up if the bond issue that will repay the bridge loan is in doubt, 
Angelides has said.


Keely Seen As Backer


Legislation needs to be introduced and passed and in "days" establishing the 
bond sale at $10 billion, Angelides said Tuesday. His office said the 
treasurer has been in "long meetings" with legislators on the issue, working 
with the governor's office to drum up votes.


Assemblyman Fred Keeley, D-Boulder Creek, will likely carry the bill, AB8X, 
an aide in his office said Wednesday. The governor's staff is working with 
Keeley on draft language, said Davis spokesman Roger Salazar. Keeley didn't 
immediately return calls for comment.


Keeley is the author of AB1X, which authorized the state to purchase power on 
behalf of its cash-strapped utilities and issue bonds to pay for power going 
forward. The authorization for the bonds, however, depends on a complicated 
calculation of the CPA, which determines the funds available for debt service 
and, ultimately, the size of the issue.


PG&E Corp. (PCG, news, msgs) unit Pacific Gas & Electric, whose appeal is 
pending before the PUC, said the Public Utilities Commission's calculations 
on the CPA "grossly overstate" the revenue that will be left over after the 
utility covers its costs. The utility has since filed for bankruptcy 
protection, raising further doubt about the state's ability to tap the 
utility's revenue for its own purposes.


The PUC is also waiting for the California Department of Water Resources, 
which is handling the state's power purchases, to release details of its 
projected power costs, the amount of power needed and how much money the 
agency expects to spend in the spot market for power. Again, the state 
reluctant to release that information.


The state has set a rough target of June for the bond sale to go forward, 
although some have said it could be delayed until July or August. Hallacy, of 
Merrill Lynch, said the bond market "could deal" if the sale was conducted 
after June 30, because it will give it more time to prepare for the sale.

-
By Jason Leopold, Dow Jones Newswires; 323-658-3874; 
jason.leopold@dowjones.com


(Jessica Berthold contributed to this article.)