Published June 20 2001, 2:00am EDT
Hungry for Power, California Obtains $3.5 Billion Bridge Loan
SAN FRANCISCO -California state Treasurer Philip Angelides announced late yesterday that the state has obtained a $3.5 billion bridge loan arranged by J.P. Morgan Securities, Inc. and Lehman Brothers that will be used to buy more power for the state’s hard-pressed utilities.
Angelides also said the state’s pending sale of up to $13.4 billion in power purchase revenue bonds will now likely take place in early September, not August as earlier hoped.
He said the state hopes to obtain an additional $1 billion for a total of $4.5 billion in funds by the time the bridge loan is scheduled to close July 1.
An earlier plan for the state to obtain a bridge loan collapsed in May after lawmakers failed to pass emergency legislation that would have permitted the debt to be sold before August. That loan was expected to be used to partially reimburse the state’s general fund for power purchases made on behalf of two troubled investor-owned utilities, but the new money will instead be used for power purchases.
As of June 4, the state had allocated $8.2 billion out of the general fund to purchase power, according to the state department of finance.
The loan announcement came one day after Gov. Gray Davis reached a deal with San Diego Gas & Electric for the state to purchase the utility’s transmission assets for about $1 billion. The transaction likely will be financed with taxable bonds.
The deal also includes a long-term contract between the state Department of Water Resources and SDG&E in which the state would use the tax-exempt proceeds of the power revenue bond sale to buy power from the investor-owned utility.
The state in April reached a similar agreement to buy the transmission lines of Southern California Edison, but legislative approval for that deal has stalled with few lawmakers supporting the purchase, which has been criticized because of the high price the state agreed to pay for the assets. State plans to purchase the transmission lines owned by Pacific Gas & Electric Co. were thwarted, at least for the time being, when PG&E in early April filed for bankruptcy protection.
Under the deal agreed to with Davis on Monday, SDG&E also would be allowed to erase $747 million in uncollected costs resulting from the difference between the recent high cost of wholesale electricity and capped rates for retail customers. The deal would mean the utility’s three million customers would not have to absorb rate increases to pay for past debts, as well as increases to pay for power bought by the state since January and in the future. In exchange, SDG&E would sell the state power from the San Onofre nuclear plant at below market rates.
The utility must provide power to the state through December 2010 and also drop all legal claims against the state.
The state agreed to buy power for SDG&E as long as it continues to buy power for either PG&E or SCE, according to Joseph Fichera, an adviser to Davis and chief executive officer of Saber Partners.
The bonds used to purchase the transmission lines are expected to be taxable debt because of a section of the Internal Revenue Service code that states a governmental entity cannot use tax-exempt debt to finance the acquisition of existing property from a privately owned utility, according to municipal tax attorneys.
The rule has some exceptions. Bonds may be issued under the privately activity volume cap or if the public entity is acquiring the assets to supply its own historic customers. In the case of California, the state has no historic utility customers.