Posted on 07/20/2002 12:16:35 PM PDT by Jean S
SACRAMENTO, Calif., July 20 (UPI) -- A long-awaited record $11.1 billion bond offering by the state of California soon will be ready for Wall Street's perusal, it was reported Saturday.
The Los Angeles Times said the issuance, which would be the largest ever by a U.S. government agency, would be used to pay the tab for electricity the state purchased in early 2001 when power costs soared and left the state's utilities reeling.
"This is a very unique situation," Dan Aschenbach, senior vice president for Moody's Investors Service, told the Times. "I don't think there is any other type of bond issue that's had to be put in place to resolve an issue as significant as a $6 billion (budget) deficit to the state."
The bonds are needed to both replace the $6.5 billion the state had to divert from the treasury to stave off rolling blackouts, but also a $4.3 billion loan used to buy power in the brutally bullish spot market.
California's deregulation plan implemented in the mid-1990s left the state's major utilities without enough generating capacity to handle growing demand and restricted them from passing on the full cost of buying additional electricity from private energy producers.
When utilities, including Pacific Gas & Electric and southern California Edison, found themselves deeply in debt with their creditworthiness scuttled, the state began buying power on their behalf through the Department of Water Resources.
State Treasurer Phil Angelides proposed the bond sale more than a year ago, however the Times noted bureaucratic delays and differences of opinion between Gov. Gray Davis and the Public Utilities Commission worked in California's favor as interest rates fell.
The supply situation has been largely corrected through temporary wholesale price caps, more long-term supply contracts and new power plants slowly coming on line. The calmer atmosphere should make the bond sale more attractive to financial analysts, the Times concluded.
"They are not buying everything off the spot market any longer," said Aschenbach. "There has been a fair amount of new generation built, which has helped the supply demand balance and helped keep prices moderate.
"It takes the pressure off having to ask for additional revenue," he added. "Those types of factors argue for a more stable rating."
The sale should be ready for vetting by Moody's and the other major Wall Street ratings agencies within a few weeks, the Times said. Once blessed, the next step would be actually pitching the bonds to investors.
The roughly 27 million customers of Edison, PG&E and San Diego Gas & Electric Co. will pay off the bonds over the next 20 years. Electric bills are not expected to be raised to cover the payments.
...and pay and pay and pay. Thank you Governor Grayout Davis.
State tax revenue will be used to pay off these bonds so that people who insist that they be allowed to consume energy at less than the market price may continue to do so.
Unfortunately, there are a lot of Demon Cats out here in CA. I hope I am wrong, but I think Davis will win in a huge landslide in Nov.
NOT EXPECTED is a far cry from WON'T.
So, we're paying higher electricity bills and we'll be paying off this bond until our kids have kids of their own. For me, these bonds will still be around when I'll be thinking about retirement. My youngest will be in his 30s.
Thanks, Gray Davis! I've got a 30-year mortgage, but at the end I'll still have a house. I have a 30-year bond debt on electricity I used once in 2001 because of your gross incompetence to run the state of California.
DUMP DAVIS!
You can thank (R) Governor Pete Wilson for opening that can of worms.
"I will not pretend to you that (the legislation) was a perfect, free-market mechanism. It wasn't. I knew that at the time. I signed it knowing that," said Wilson. "I thought whatever flaws would emerge ... they would be addressed by our successors."....Read: 'I was desperate for a legacy so I had to pass the buck'.
Electricity so called "deregulation" is not working without price controls anywhere it's tried.
Where has it been tried without price controls?
California had and still has price controls on electricity. Combine price controls with a dearth of new electricity generation construction-permits (California went 20+ years without any new power plants) and it shouldn't surprise people to see the system go nuts.
I hope you're wrong too. I think that its going to be a squeaker either way. I hope for a squeaker in Simon's favor.
I may be a fool for thinking this, but I still hold out a great deal of hope that a conservative can be elected govenor in this state. Time will tell.
Furthermore, I would like to see the Dems suffer the loss of a govenorship in California this November, regardless what happens nationally.
I should think that Davis should be easier to beat given his low approval numbers, scandals, etc.
I don't understand why people keep saying that. Simon is leading in all the serious political polls of likely voters. Th most recent poll has Simon ahead by 8 points.
Yes there are a lot of liberals out here, but this is a state with a lot of conservatives too. The simple fact is that liberals and Rats don't tend to turn out in large numbers, and when their man is a creepy slime like Davis, they will turn out in even lower numbers.
You want a pleasant surprise? Come on out here and walk around a shopping mall with a Simon for Governor T-Shirt on. People will pull you aside right and left and tell you how much they despise Davis even though they are Dems and voted for him before. It happens to me and my wife all the time.
During Carter's disastrous presidency, and there was more than one disaster then, some of actually his own doing, bond rates were high and so was inflation. Those who had the scratch at that time could get 20%. What's more the 20% continued even after Carter was gone and the economy returned to sanity. And the trade price for the bond almost doubled overnight. Win-win.
If a person buys some of these California power bonds now, he will lock in 6% or so, whatever the interest rate turns out to be at initial offering. If the interest rates inrease, bond prices will decrease just enough to make an effective interest rate in spite of the face value. Which is to say, as interest rates rise, and this will happen, not only will you lock in your 6%, but your bonds will bring you less if you sell them. Lose-lose.
So, much as I relish the idea of someone paying his utility bill and some taxes too for the next 30 years to support me in my dotage, the bonds don't look all so attractive.
Institutions will snap them up, of course.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.