I know I wouldn't invest in any of the bonds, not when the CA utilities are in such chaos, price ceiiings are in place, and the residents don't have a track record of paying the true cost.

When the rates finally do reflect the cost, there are adequate assurances that additional money won't be needed, rates are high enough to pay off the bonds too, the impact of the higher rates can be evaluated agains the state enonomy, then the bonds MIGHT become attractive, secure, and investment grade.

Right now CA is asking investors to share an awfull lot of risk for a very low return.

Thursday April 12 8:22 PM ET PG&E Bankruptcy Threatens Calif. Power Bond Deal

By Michael Kahn

SAN FRANCISCO (Reuters) - California's plan to issue $10 billion in bonds to help it survive the state's worst-ever power crisis could be undercut severely by the bankruptcy of Pacific Gas & Electric, analysts and investors say.

The state intends to issue the debt by June to replenish a general fund depleted from emergency power purchases needed to keep the lights on in the nation's most populous state.

But PG&E Corp.'s Pacific Gas & Electric's filing for Chapter 11 bankruptcy protection last week could delay or even scupper those plans -- despite assurances from the state treasurer that the bond deal is moving forward on schedule, analysts said.

``At this point we do see that it could be a complication,'' Moody's Senior Vice President Dan Aschenbach said in a recent interview.

The central question revolves around whether the California Public Utilities Commission (news - web sites) or bankruptcy judge Dennis Montali has the authority to set power rates and divvy up electricity revenues from consumers' bills.

The CPUC last month approved a rate hike averaging 40 percent and allocated enough revenues to the state so officials could issue the bonds. But the utility is poised to challenge that order, a move which could hand the judge the right to raise rates.

This also extends the uncertainty surrounding what would be the biggest municipal bond deal in U.S. history until a hearing in Montali's San Francisco bankruptcy court. It was not clear when the judge would schedule arguments on that issue.

Important Question

``You have to have that answer to the question bound up in as much certainty as you possibly can because that is where the revenue will come from to repay the bonds,'' Aschenbach said.

The bond deal is crucial to protecting the state's credit rating and bolstering a general fund depleted after months of emergency power purchases needed to keep the lights on in California.

The state launched its energy program in January after two days of rolling blackouts left hundreds of thousands of homes and businesses without power.

California's energy crisis stems from a flawed 1996 deregulation plan which let wholesale prices rise unchecked but capped retail rates. The result has brought blackouts, a spotty power supply and pushed the state's biggest utility into bankruptcy protection.

Scrambling to fix the situation, Gov. Gray Davis (news - web sites) ordered the Department of Water Resources to negotiate long-term power contracts while buying power on the spot market -- at a cost of close to $50 million a day.

But with the state's projected $6.6 billion general fund disappearing quickly, many fear that without the bond deal California won't have enough funds to keep power flowing this summer when residents crank up their air conditioners.

``If that doesn't happen then the lights can't stay on because there is no money to pay for power,'' analyst Aschenbach said.

Some investors add that the bankruptcy and the political maneuvering swirling around the bond deal may end up scaring off many would-be buyers.

``It points too much of a cloud over the (bond sale),'' Drew McCullough, who runs a California Tax-Free bond fund for Delaware Investments in Denver, Colo., said in a recent interview.

Still, Treasurer Phil Angelides told Reuters last week that the bond deal is going forward and remains on track to hit the market by June despite Pacific Gas & Electric's bankruptcy.

He said he was confident a team of underwriters and lawyers reviewing the deal could come up with a structure to ease market concern in light of the utility's Chapter 11 filing.

``We are moving forward,'' Angelides said.

-- Tom Flook (tflook@earthlink.net), April 13, 2001

Answers

California is going to lead the nation into recession for the following reasons:

1. Internet industry is more or less centered in/around Silcon Valley and it has imploded. Massive layoffs of super high paying jobs. Domino effect will ensue. 2. Ridiculous energy prices are closing energy intensive manufacturers. Layoffs of high paying jobs. Domino effect will ensue. 3. Collapse of PG&E and Southern CA. State is buying Southern CA transmission lines which means no property tax on that property. Less tax base to repay bonds for stratospheric energy prices. 4. Companies leave CA due to uncertain energy supplies. Real Estate prices collapse, less property tax income for the state to repay bonds. 5. Massive layoffs due to recession, high energy costs, less sales tax revenue for state to repay bonds, maintain services. Continued depression of property values. 6. Rising crime drives retirees and others from state, more pressure on property values. Less income for retirees due to sinking interest rates, a lot of companies eliminating dividends, unbelievable energy prices, gas prices and insurance eating away at discretionary spending.

Positive note - Lots of yard sales and expensive gas hogs at drastically reduced prices.

P.S. Expect lots of energy blackouts this summer for California because Washington has NO SPARE energy to export due to near drought conditions, worse since 1977. More than likely California will have record heat as well due to global warming.

-- Guy Daley (guydaley@altavista.com), April 13, 2001.

When real estate prices drop, banks go in the tank.

-- David Williams (DAVIDWILL@prodigy.net), April 13, 2001.