http://news.excite.com/news/r/010509/15/utilities-california-bonds

Calif. Senate oks emergency power bond bill

Updated 3:58 PM ET May 9, 2001

SACRAMENTO, Calif. (Reuters) - The California state Senate Wednesday approved a bill to issue $13.4 billion in bonds to pay for emergency power, sending the measure to Gov. Gray Davis, who was expected to sign it.

The Senate's approval came two days after Republican opposition forced the state Assembly to pass the bond measure as a piece of regular -- rather than emergency -- legislation, meaning the state will have to wait at least 90 days to launch what would be the largest municipal bond issue in U.S. history.

Senate President John Burton, Democrat of San Francisco, said the next move would be to adjourn the legislature's special session on energy, possibly on Monday, to start the clock ticking on the 90-day wait.

"That way, since this thing takes 90 days we'll be able to start selling the bonds to replenish the general fund," Burton said.

Emergency power purchases forced by its energy crisis have drained California's state treasury of some $6 billion, spurring officials to warn that the state risks costly financial ratings downgrades and could see funding shut off for important programs such as health or education.

The bond issue is intended to pay the state back, with the debt to be paid off over 15 years through a portion of Californians' monthly power bills.

Davis spokesman Steve Maviglio said the governor would probably sign the bill either Wednesday or Thursday.

"We are pleased with passage. Unfortunately, however, the Republicans decision to obstruct on this issue is going to have some serious consequences for the state budget."

Republicans, who are in a minority in both houses of the legislature, have voiced concern that the Democrats' bond proposal is too large and suggested that the state should use its budget surplus to essentially write off some $5 billion already used to buy power.

"We're not talking about $13 billion. The grand total will be $19 billion," said Tom McClintock, Republican of Northridge, saying interest payments on the bonds would add substantially to the cost of the debt.

But Democrats were adamant, saying the state simply cannot afford to keep pumping all its money into power purchases.

"We have 200,000 children waiting for medical care in this state, I think it would be a good thing if the money were there," said Sen. Sheila Kuehl, Democrat of Santa Monica.

The anticipated 90-day delay in launching the bond sale effectively blocks a $4.1 billion bridge loan aimed at helping California weather the power crisis until the state can issue the debt. That loan expired Tuesday, leaving officials scrambling for other sources of funding to get California through the summer.

California's energy woes stem from a bungled 1996 deregulation plan that allowed wholesale prices to soar, but capped retail rates. The result has brought rolling blackouts, spotty supplies and forced the state's biggest utility into bankruptcy protection.

State Treasurer Phil Angelides has said he is exploring other options to sell the bonds prior to August, including the possibility that the state's original plan to sell $10 billion in bonds -- which has been put on hold by a legal dispute between the state and its two largest utilities -- could somehow be put back on track.

Public advocates, who have criticized the power bond plan as part of a giant bail-out for the utility and energy companies which helped to design California's 1996 deregulation plan, slammed the bond proposal doing nothing to address the sky-high wholesale power rates at the root of California's predicament.

"We need to put a spending limit on the taxpayer's credit card that is being used to buy electricity at wildly inflated prices," the Foundation for Taxpayer and Consumer Rights said in a statement.

"Then we need to tell the generators that they must issue refunds and reduce rates to fair profit levels, or we will use every measure of the state's sovereign authority to lower rates ourselves."

-- (in@energy.news), May 10, 2001

Answers

>>>The bond issue is intended to pay the state back, with the debt to be paid off over 15 years through a portion of Californians' monthly power bills.

So this 'bond issue'- er, loan request- will not even be floated on the open market, at a market rate? Instead, the taxpayers will be forced to pay it back, at whatever rate the state decides it wants? How is this not simply a tax increase by another name, except one whose effect would be to make California's credit rating sink even more? Approaching death spiral...

-- NiceKnowingYa (Goodbye@Golden.State), May 10, 2001.