|
|
Enron Mail |
California's Finances
The State of California will be walking a fiscal tightrope for a while until wholesale energy costs come down. At first look, it seems California's financial position seems OK in the short term; however, the picture remains troublesome in the medium term. For one thing, instead of the bridge loans, the state can and probably will resort to Revenue Anticipation Notes, and has also scheduled a billion dollar G.O. offering for June, which will help with the cash situation. There are also still substantial borrowable resources available to the state within its own accounts. However, they would prefer not to resort to that, as doing so could have further implications for their bond ratings, but the option is there. Another reason California might be OK in the short term, is that, everyone except Moody's, had conflated the money allocated for power purchases, $7.2 billion, with the money actually spent for power purchases, $4.3 billion. This indicates that even the pure cash component of the state's general fund has a longer shelf life. So now the question shifts from a near term liquidity issue to asking how much of an economic effect will the combination of blackouts and much higher retail energy prices have on California's already flagging economy, and what will the knock-on effect of this be on the state budget. The state is completely assured that the proceeds of the bond offers, and the use of the rate hikes to service those bonds, are "bankruptcy remote" vehicles. Second, California legislatures are not concerned by the possibility of a ballot initiative. Other areas of concern are about the tax revenues in light of an economic slowdown, as well as the medium-term risk of high electricity costs for debt service for the next 15 years. This will exert a sizable drag on California's growth which could itself have budgetary consequences. This is actually a best case scenario, and it is clear that the ratepayer has more pain to come, especially if California bails out Edison and PG&E creditors with a "Plan B." Legislative Matters Nine key Democratic members are preparing legislation that would authorize a buyer's cartel along with Washington state and Oregon state to set a firm upper limit on what each state will pay for electricity during peak demand periods. Under this legislation, the state would simply refuse to pay more than a predetermined price for electricity, no matter what happened. The Senate is having a hearing on this issues next Tuesday. Davis commented yesterday that he is in support of this legislation. As mentioned in Wednesday's report, of the two viable Plan B's, success will be determined by the following questions: (1) will it trigger a rate-payer rebellion among California voters?; and (2) will it pass in time for SoCal Edison to be rescued before bankruptcy? One problem is that even if the Plan Bs worked out for both SoCal Edison and PG&E, what happens with the other 64% of their power needs? One legislator notes, "even the good Plan B from SoCal's perspective makes them essentially a vessel of the state and if we are still talking about eminent domain with the other plants in California how do you add new capacity -- which is the ultimate solution -- when everybody who has come in has their assets seized?" The real issue still remains for any Plan B is: who pays for it and how much more does it cost taxpayers. Rate payers in California are already looking forward to a future where their electricity rates will be paying not only for the colossally high cost of the power itself, but also the coupons and ultimately the principal on the $13 billion in bonds just authorized, on the "rate reduction" bonds already outstanding and -- if the Plan B advocates get their way -- on bailout debt issues for SoCal Edison and PG&E.
|