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California Assembly approves sale of power bonds worth $13.4 billion Republicans oppose measure that now heads to Senate By Jason Leopold DOW JONES NEWSWIRES LOS ANGELES, May 8 — The California state Assembly passed legislation late Monday authorizing the sale of $13.4 billion in revenue bonds — the largest municipal bond issue in U.S. history — to finance the state’s wholesale power purchases.

BUT THE MEASURE failed to get the two-thirds-majority vote needed to allow the bonds to be sold immediately, which means the state will also lose out on a $4.1 billion bridge loan to repay the state’s general fund for money it spent buying power since January. The bill passed by a vote of 49-29. Assembly Republicans opposed the bill, which now moves to the Senate for a vote. “This partisan vote sentences California rate payers to 15 years of energy bondage,” said Assembly Republican Minority Leader Bill Campbell. “Republicans proposed $5 billion in rate cuts for utility rate payers and $1.5 billion in rate cuts for municipal utility rate payers. Democrats would rather spend the surplus than reduce power rates.”

The bill, an existing piece of legislation amended in the Assembly Monday, will allow the state to sell the bonds in mid-August and will require that the special Legislative session be shut down to trigger a 90-day clock, the amount of time needed for a majority measure to take effect, according to an aide in Assembly Speaker Pro Tem Fred Keeley’s office. EMERGENCY SESSION POSSIBLE The session, ongoing since January, will likely be shut down Thursday, but another emergency session can be called immediately thereafter to deal with pending legislation, the aide said. Jamie Fisfis, a spokesman for the Assembly Republican Caucus, said Assembly Speaker Robert Hertzberg told GOP members he wants the bonds to be sold immediately and will meet with GOP members to see if they would support a smaller bond sale. A spokesman for Mr. Hertzberg wasn’t immediately available for comment.

Wall Street bond analysts said earlier Monday that without bipartisan support for the bond measure, the state’s credit rating is at risk if it is forced to continue dipping into its general fund to pay for power. California has spent more than $5 billion since January buying power on behalf of its cash-strapped utilities. “Well, obviously it creates several problems,” said John Hallacy, managing director of municipal bond research at Merrill Lynch & Associates. “From a cash perspective, assuming the bridge doesn’t get activated, the general fund wouldn’t get replenished until two months into the fiscal year. The 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 banks behind the bridge loan — J.P. Morgan Chase & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos. — are to commit to the package by Tuesday. As reported, state Treasurer Phil Angelides has said those commitments are in doubt if the bond issue isn’t approved. The banks, however, could grant the state an extension. Without the bridge loan, the state will have to continue to deplete its general fund to pay for power during the critical summer months and risk a further downgrade in the state’s credit rating if those funds aren’t replenished, Wall Street bond analysts said. “The state should be able to make it through the 90 days, but it will be fairly tight unless can [sic] arrange another bridge loan,” said Brad Gewehr, managing director of municipal bond research for PaineWebber Inc. in New York. “My own estimates show the state can continue through the summer, but it depends on the price of power. But there’s always a risk of another downgrade.” Assembly Republicans said the state doesn’t need a bridge loan. Last week, they came up with an alternative plan, suggesting the state write off what it’s spent on power thus far and reduce the size of the bond issue to $8 billion. GOVERNOR WARNS OF SPENDING CRUNCH Any lawmaker who withholds his vote on the power-bond bill risks forcing California to choose between paying for power and funding other needs, as well as sending the wrong signal to Wall Street, Governor Gray Davis said Monday, adding that the state’s spending on electricity would “increase the amount the state would spend to nine, ten, eleven, twelve billion dollars this summer.” The situation is growing more urgent. Citing the “mounting and uncertain” costs of California’s power crisis, ratings agency Standard & Poor’s has 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. The treasurer has said he wants to move ahead with the issue in June, although some observers said it could be delayed until late this summer. That wouldn’t concern the bond markets, although the lack of detail thus far is raising questions, Mr. Hallacy said.

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-- Robert Riggs (rxr.999@worldnet.att.net), May 09, 2001