http://www.contracostatimes.com/news/california/stories/bonddelay_20010928.htm

Published Friday, September 28, 2001

State's revenue bond sale stalled POWER CRISIS

They can't go on the market until the PUC makes a rate decision; $9 billion deficit may ensue

AT A GLANCE

-------------------------------------------------------------------------------- Developments Thursday in California's energy crisis: Gov. Gray Davis ordered a third special legislative session, calling lawmakers back to the state Capitol to work out a plan to help Southern California Edison. Davis announced in April that he and Edison had agreed on a rescue plan, which included having the state buy the utility's transmission lines for $2.76 billion. It would allow Edison to sell revenue bonds for the remaining debt. The Senate and Assembly each passed their versions of the plan this summer. But the two houses couldn't reconcile their plans before the regular session adjourned Sept. 15. --------------------------------------------------------------------------------

By Andrew LaMar CONTRA COSTA TIMES

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SACRAMENTO -- California won't be able to sell $12.5 billion in revenue bonds to repay the state for electricity purchases until at least January, and further delays threaten to produce a $9 billion budget deficit next year, state Treasurer Phil Angelides warned Thursday.

The bonds can't be offered to investors until the Public Utilities Commission determines how much of the repayment should go to the state and major utility companies. The PUC must adopt two documents, a rate order and a rate agreement, that establish what ratepayers will be billed and who has authority over the charges.

But while Angelides blamed the PUC for being slow to act, utilities commissioners pointed fingers at officials in the administration of Gov. Gray Davis. PUC President Loretta Lynch said the Department of Water Resources, the agency buying power for the state, has failed to provide financial information required for the rate order to be approved.

In addition, the utilities commission must handle the matter delicately, paying close attention to the law, to avoid being overturned by a legal challenge, she said. The issue is so controversial that everyone from Pacific Gas & Electric Co. to consumer advocates has balked at elements of the proposals.

"What I do know as a lawyer is these folks are serious about suing," Lynch said of the many interests involved.

On Thursday, Angelides said it is no longer possible to sell the bonds this year. Even in a "miracle" setting, assuming the utilities commission were to act immediately, the treasurer said, the state would need two months to do necessary paperwork before it could go to the market with the bonds.

That would put the bond sale in mid-December, a bad time on Wall Street because it's right in the middle of the holiday season, Angelides said.

Because the bonds won't be sold by Oct. 31, the state will see the interest on its $4.3 billion short-term loan taken out in June go from just below 4 percent to 6 percent, Angelides said.

But the treasurer said a worse calamity could be on the way if the PUC's decisions on rates prompt a lawsuit. The bonds can't be offered if the plan is still being tested in court, he said, meaning the state could enter next spring's budget season facing a $9.3 billion deficit.

"People do not see the freight train of fiscal chaos coming," Angelides said.

To cover the shortfall, the state would have to cut its noneducation spending by 18 percent or substantially raise taxes. In such a scenario, policymakers would face the same difficult questions they did in the early 1990s when the state endured a $14 billion deficit, Angelides said.

The treasurer's calculations did not factor in the effects of the Sept. 11 terrorist attacks.

"No one out there is saying the figures will get better," Angelides said.

The state began the 2001-02 fiscal year with a $103 billion spending plan and a $2.6 billion reserve. However, for July and August, state revenues came in $142 million below projections.

Financial analysts are bracing for the fallout from Sept. 11, said Sandy Harrison, a spokesman for the Department of Finance.

"I think we're expecting to see some kind of effect. We don't know exactly what it will be," Harrison said. "We're expecting to see some sort of disruption."

The $12.5 billion in revenue bonds is intended to repay the state general fund for spending more than $6 billion the first six months of 2001 to buy electricity for the state's financially troubled major utility companies. Investors would purchase the bonds and be repaid with money from ratepayers over a span of 15 years or longer.

"I think the money has to get paid back, absolutely," Lynch said. "The question is what is the structure to get it paid back without getting weighted down by a thicket of lawsuits in a variety of courts where other people are calling the shots."

Andrew LaMar covers state government. Reach him at 916-441-2101 or alamar@cctimes.com.

-- Martin Thompson (mthom1927@aol.com), September 28, 2001