Long road remains before state can sell $11.1 billion bonds

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The Associated Press

SAN FRANCISCO: California power regulators no longer stand in the way of the state issuing $11.1 billion of bonds to settle its looming power-buying debt, an expensive souvenir from last year’s energy crunch.

But several steps remain before the state can shower Wall Street with one of the largest bond offerings in U.S. history, said Phil Angelides, state treasurer.

A financing agreement approved 4-1 by the Public Utilities Commission on Thursday puts the state closer to selling bonds that “restore funding for critical services such as education, health care and public safety,” Angelides said a statement.

The PUC still must amend agreements which require three troubled utilities to forward some of their ratepayer dollars to the state, which has been buying electricity for their customers. A law firm must determine whether the financing agreement is viable, and any court challenges must be resolved.

Finally, credit rating agencies must analyze the results and decide whether to bestow an investment grade rating on the bonds.

All this must happen before June 30, the end of the state’s fiscal year, to avoid widening the state’s $14.5 billion budget deficit by an extra $6.1 billion. That’s how much the state borrowed from its general fund to buy power.

The bonds will also cover a $4.3 billion loan that also went to buy power, and an expected $413 million in interest that will have accrued by June’s end, according to the state Department of Finance.

Critics of the plan aren’t sure the state will make it, and worry because the financing agreement doesn’t make paying back the general fund the top priority unless the all $11.1 billion in bonds are issues.

Oscar Hidalgo, a spokesman for the Department of Water Resources, the state’s energy-buying agency, said there is only a “remote” chance the market would be too saturated to buy all the bonds and said the DWR will pay the debt.

The financing plan also spells out how bond money and ratepayer dollars will be divided to flow into the DWR’s operating costs, pay bond holders and energy sellers and begin chipping away at the $40 billion in long-term energy contracts California made to stabilize its troubled power market.

The plan also requires the PUC to rubber stamp any requests the DWR says it needs to pay its bills. That would include rate increases. It bars the PUC from blocking DWR spending even if it’s questionable.

That aspect drew severe criticism from consumer advocates and even some commissioners Thursday.

The agreement “is a blank check for the Department of Water Resources to pay all power purchases, no matter how imprudent,” said Commissioner Henry Duque, the lone dissenter.

Gov. Gray Davis, disagreed, calling it a “giant step forward.”

“This is good news for California because rates will not rise” to pay the power debt, Davis said in a statement.

Other commissioners also complained before voting, taking care to note the loss of oversight required by the state Legislature. But voting yes was the only way to bring the bonds to market and prevent sharp budget cuts.

“We frankly are on the verge of bankruptcy unless we find a way to pay our bills,” said Commissioner Richard Bilas. “Hand wringing and finger pointing at this point in time do not make the state’s deficit go away.”

Commissioner Carl Wood suggested that critics urge their lawmakers to give the PUC more control over energy markets.

“If we don’t have oversight, we don’t know what the heck (DWR) is doing with all the money they’ve acquired,” said Doug Heller of the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

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