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Date: Thu, 26 Apr 2001 17:24:51 -0500 From: "Tracey Bradley" <tbradley@bracepatt.com< To: "Justin Long" <jlong@bracepatt.com<, "Paul Fox" <pfox@bracepatt.com< Cc: "Ronald Carroll" <rcarroll@bracepatt.com< Subject: WRAP: Calif Turns To Lawmakers As Power Bond Deal Stalls Mime-Version: 1.0 Content-Type: text/plain; charset="us-ascii" Content-Disposition: inline WRAP: Calif Turns To Lawmakers As Power Bond Deal Stalls Updated: Thursday, April 26, 2001 03:35 PM ET By Jason Leopold Of DOW JONES NEWSWIRES LOS ANGELES (Dow Jones)--Frustrated by delays in securing regulatory decisions needed to support a massive issue of bonds to finance power purchases, California Treasurer Phil Angelides, Gov. Gray Davis and several lawmakers are working on an end run through the state Legislature. The group is putting together legislation, aimed to be introduced in the state Assembly as early as Friday, that will directly authorize the state to sell $10 billion in revenue bonds - in the process clearing the way for the state to close on $4.1 billion in interim financing. But there are pitfalls along that path as well, raising new questions about when the bonds will be sold. John Hallacy, managing director for municipal bond research at Merrill Lynch & Associates, said the bond market is still expecting the sale, but he's concerned that details on marketing of the bonds haven't been released. Hallacy said if the bond sale is delayed it will be a problem for the state. "Where will they get the money to buy power over the summer?" Hallacy said. T he 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 commission's standing proposal for calculating the so-called California Procurement Adjustment - the amount of electricity rate revenue available to the state - has been appealed by the state's struggling utilities, which argue the plan would leave them unable to meet their own obligations. "The utilities effectively blocked the bond sale by appealing the PUC's action on how they calculated the CPA," an aide to Angelides said. "So now we're saying, 'Let's sell the bonds by revising the law and go to the Legislature to get what we need.'" Legislature No Slam Dunk Whether the legislative route proves more fruitful remains to be seen. As reported, Assembly Republicans said Wednesday that they wouldn't vote for the measure unless the governor releases details of the state's long-term power contracts, information the governor has thus far refused to divulge. "Republicans believe it is fiscally irresponsible for the Legislature to ask ratepayers to shoulder the extraordinary weight of a $10 billion bond before the governor finally discloses what the ratepayers are getting in return," Assembly Republican leader Dave Cox, R-Fair Oaks, said in a press release. The treasurer needs Republican support if the bill is to win the two-thirds majority it needs to be implemented immediately. California has spent about $5 billion since mid-January buying power in place of the state's cash-strapped utilities, a total that is growing by about $70 million a day. The state needs to move ahead with the bridge financing and bond deal to repay the state's general fund for power already purchased and to stretch out future power costs that can't be covered in full by electricity rates. The situation is growing more urgent. Citing the "mounting and uncertain" costs of California's power crisis, ratings agency Standard & Poor's 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. Angelides has said that the state's budget surplus will be depleted if legislation isn't passed allowing his office to sell the bonds. In addition, the clock on the state's bridge financing deal is ticking. Commitments from bankers to fund the loan are due May 8, and the banks have said they won't sign up if the bond issue that will repay the bridge loan is in doubt, Angelides has said. Keely Seen As Backer Legislation needs to be introduced and passed and in "days" establishing the bond sale at $10 billion, Angelides said Tuesday. His office said the treasurer has been in "long meetings" with legislators on the issue, working with the governor's office to drum up votes. Assemblyman Fred Keeley, D-Boulder Creek, will likely carry the bill, AB8X, an aide in his office said Wednesday. The governor's staff is working with Keeley on draft language, said Davis spokesman Roger Salazar. Keeley didn't immediately return calls for comment. Keeley is the author of AB1X, which authorized the state to purchase power on behalf of its cash-strapped utilities and issue bonds to pay for power going forward. The authorization for the bonds, however, depends on a complicated calculation of the CPA, which determines the funds available for debt service and, ultimately, the size of the issue. PG&E Corp. (PCG, news, msgs) unit Pacific Gas & Electric, whose appeal is pending before the PUC, said the Public Utilities Commission's calculations on the CPA "grossly overstate" the revenue that will be left over after the utility covers its costs. The utility has since filed for bankruptcy protection, raising further doubt about the state's ability to tap the utility's revenue for its own purposes. The PUC is also waiting for the California Department of Water Resources, which is handling the state's power purchases, to release details of its projected power costs, the amount of power needed and how much money the agency expects to spend in the spot market for power. Again, the state reluctant to release that information. The state has set a rough target of June for the bond sale to go forward, although some have said it could be delayed until July or August. Hallacy, of Merrill Lynch, said the bond market "could deal" if the sale was conducted after June 30, because it will give it more time to prepare for the sale. - By Jason Leopold, Dow Jones Newswires; 323-658-3874; jason.leopold@dowjones.com (Jessica Berthold contributed to this article.)
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