SACRAMENTO, 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.
