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Bond Sales Should Repay State in Weeks

Finances: Angelides plans to take in nearly $12 billion to cover power crisis spending.


SACRAMENTO — The billions of dollars drained from California coffers by the electricity crisis should be replaced by early November under a schedule state Treasurer Phil Angelides announced Friday.

Angelides hopes to sell $11.95 billion in bonds over the next six weeks. The cash raised will be used to repay the state's general fund, with interest, for the purchase of electricity in 2001 when three private utilities were too short of cash to do it themselves.

The first of the bonds are expected to be sold the week of Oct. 27.

The bond sale comes more than a year after Angelides' original target date. But the delay may prove a blessing. Interest rates for municipal debt are now unusually low, and stock market turmoil makes such bonds a more stable, attractive investment to some.

"I think the state is coming to market at an ideal time," said Steven Permut, vice president of municipal research for American Century Investments in Mountain View, Calif.

Each month for the next 20 years, customers of Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric will pay off more of the $11.95-billion debt through their monthly electricity bills. While the exact bond charge hasn't been finalized, preliminary estimates put it at between $2.50 and $3.50 per month for the average residential customer.

State officials say no rate hike is needed to cover the bond costs in the near term, beyond an increase enacted last year that fell most heavily on business and industrial customers. But the bond obligation makes it less likely that the utility rates--now among the highest in the nation--will fall any time soon.

Angelides said he will not release many details about the structure of the sale until Thursday. But Wall Street's three main credit-rating agencies on Friday released their opinions of the offering.

The ratings were mixed and less than ideal: Standard & Poor's assigned the bonds BBB-plus, two notches above its lowest investment-grade category. Moody's Investors Service and Fitch Ratings gave the bonds the equivalent of an A-minus.

Lower ratings mean higher interest costs for utility customers. For example, recent average market interest rates on 20-year municipal bonds rated "A" are quoted at 4.8%, compared with 5% to 5.5% for A-minus to BBB-plus-rated bonds. The difference would amount to roughly $70 million a year in additional interest payments on a $12-billion offering.

Still, Angelides said the ratings are what he expected on a bond deal so big and complicated.

"Given all that we have been through over the past year, yes, we are pleased," he said.

The bond sale was delayed many months as some members of the Public Utilities Commission and the administration of Gov. Gray Davis argued over how to do three things at once: guarantee that both power companies and bond buyers would get paid and still give state regulators discretion over electricity rates.

In the end, to make the bond sale possible, the PUC gave up much of its authority to set electricity rates. The panel of five gubernatorial appointees agreed to raise rates as necessary to match the costs of the state Department of Water Resources, which has been buying power for the utilities since blackouts threatened the state on Jan. 17, 2001.

The energy bonds will reimburse the state's taxpayers for $6.1 billion taken from the general fund, plus $500 million in interest. The bonds will also retire a $4.3-billion loan taken out in June 2001 to help cover electricity costs. The remainder of the money will be used for reserves, issuance costs and bond insurance fees.

State Controller Kathleen Connell said Friday that even if Angelides sells the bonds as expected, she will need to borrow roughly $10.5 billion immediately to help the state get through a cash crunch next month.

A faltering economy and over-optimistic revenue estimates by the Davis administration make additional borrowing necessary, she said.

"We have to have our first slug of money by Oct. 18 and his energy bond is not going to be done by Oct. 18," said Connell.

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