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.