$10-Billion Power Bond May Be Gone by September, Officials Say

Electricity: Treasurer Phil Angelides sends a letter to California leaders, warning that the state may have to borrow more for future energy purchases.

By MIGUEL BUSTILLO and NANCY VOGEL, Times Staff Writers

SACRAMENTO--A record $10-billion bond that is supposed to finance California's emergency electricity purchases for the next decade could be depleted as early as September, raising the possibility that the state will have to borrow even more money.

Unless California succeeds in reducing the high prices it is paying for power on the wholesale market, state Treasurer Phil Angelides said in a letter to top state leaders, the $10 billion will soon run out, and more financing will be needed.

Moreover, Angelides said, the California Public Utilities Commission must act decisively in coming weeks to make sure the state receives some repayment for the power buys by securing its fair share of money from consumers' electric bills.

Otherwise, the $10 billion, already the largest municipal bond issue in the nation's history, will not last long. Angelides expects to issue the bonds in late May or early June. He hopes to secure short-term financing by the end of this month.

The repayment issue could prove contentious: The state's private utilities are already arguing that there is barely enough revenue from the existing utility rates to cover their power expenses, much less the state's as well. "If we're going to issue bonds, we must have first call on that money," Angelides said Thursday in a news conference.

Angelides added he would not issue more than $10 billion in bonds without further direction from Gov. Gray Davis and the Legislature. Floating more than $10 billion, he said, would result in higher interest rates. If the state can stay within the $10 billion in bonds, Angelides estimated, the state would need $1.3 billion a year in revenues to retire the bonds, assuming a blended interest rate of 5.45% and a 12-year term.

State Finance Director Tim Gage maintained that California should be able to gain control of the situation without further rate increases. Rates are already expected to increase roughly 19% by early next year. But the author of the legislation that put California in the power purchasing business, Assemblyman Fred Keeley (D-Boulder Creek), said it was becoming clear to him that a rate increase was likely. "I look at the data, my conclusion is, rates are going up," Keeley said.

Because the state's largest utilities could no longer afford to buy electricity, California in January took emergency action and began buying power for their customers. Already, the state has spent or dedicated more than $3 billion to keep the lights on by purchasing roughly a third of what is used by customers of Pacific Gas & Electric and Southern California Edison.

To help finance the purchases, which are costing the state far more than it wishes to charge consumers, the Legislature authorized the state to issue bonds. The amount of bond money that can be issued under the law is governed by an arcane formula, but lawmakers estimated it at $10 billion.

The formula could now prove too restrictive, however. Gage said that to borrow $10 billion under what the formula allows, the state must find a potential revenue stream of $2.5 billion a year from utility customers.

If there isn't enough money flowing in from utility customers to pay for the $10 billion in bonds, then the legislature may be asked to amend the power-purchasing law. --- Times staff writers Dan Morain and Nancy Rivera Brooks contributed to this story.

Copyright 2001 Los Angeles Times

-- Swissrose (celier3@mindspring.com), March 09, 2001