california update 4 / 05 / 01 below is the transcript of an interview conducted yesterday with state treasurer phil angelides :
summary :
? bond issuance to be $ 10 b with 10 - 15 year term , 70 % tax exempt and 30 % non - exempt
? angelides in favor of wind fall profit tax
? opposed to current discussion between davis and socal in regards to socal paying off the generators over 12 years with a 2 - year grace period
what decisions on rate components are necessary before you can sell bonds ?
" the big things we need are that the puc must enter into agreement with dwr , essentially warranting that sufficient revenues from rates will be available for purchasing power . it is really their job to define what each party needs to pay for power . we need to give assurance to the investment community that whatever the overall rate is , the state will get enough to pay its bonds . however , if the utilities challenge the decision , it could stall the bond issuance . "
what do you think will be the size of the first bond issue ?
" based on what is currently possible and what the legislature has authorized , around $ 10 bn . the puc has allowed us to sell north of $ 13 bn , but we anticipate that $ 10 bn is absorbable . until the administration provides details for this office and the public on what its costs of buying power are and what it needs in terms of funding , what will drive it is that number , not what the puc has said . the issuance may well be a single $ 10 bn issue or a series of smaller ones done together , e . g . $ 3 bn each 3 weeks apart . "
what is the total size of the market for ca tax - exempt bonds ?
" what we do normally is $ 5 - 10 bn in bonds for various revenues or general obligations . in 1997 the ca infrastructure rate reductions bonds was a $ 7 bn issuance , and this was handled well . this is not exclusively a ca market . around $ 200 bn of these bonds is sold each year . we anticipate that the bonds will be 70 % tax - exempt and 30 % non - exempt . "
what is the total of electric supply contracts that are firm enough to require funding ?
" we have estimates . the dwr is buying power , and let ' s say power costs $ 100 and its portion of rates is $ 70 . this bond issuance covers the diff between $ 100 and $ 70 . so , the bond issuance is a way to cover the gap . however , if power prices do not come down , you cannot keep borrowing . if we issue more than $ 10 bn in bonds , i have to see the whole financial plan . ( the implication is that he will not keep this plan secret . ) "
what will be the term mix of the bond issues ?
" overall term is expected to be in the 10 - 15 year range . i do not know the mix . "
do you have the ability to do bridging tax anticipation notes or anything like that to take care of the general fund ?
" the very purpose of the bridge loan is that we are taking a taxable and tax - exempt bridge loan until bonds are issued . in order for us to issue bonds , a number of steps have to occur . i would hope that the puc and dwr do what they have to do realistically by june . then the bond issuance would come semi all - at - once . ( in other words , either all at once , or something like $ 3 billion every three weeks . ) "
are all of the general funds ' assets in cash , or are some in the form of a less liquid receivable ?
" we have a lot of liquidity in real cash in general fund . we have a cash flow . we have the ability in pooled money investment accounts so that we can go out to five years . we have $ 40 bn - plus in that account . "
what is the minimum working capital required in the general fund for day - to - day operations ?
" it depends , and goes up and down . on any given day we are doing on the order of $ 500 mm . there is a $ 100 bn budget between the general funds and special fund . "
are you discussing the dwr contracting in relation to the required funding ? do you have a veto on the deals struck ?
" this is all in the administration ' s court . what we have asked for is the information . we have asked for this today by letter . we have to move from working with 3 or 4 banks to a public offering , which means public disclosure . the general fund has been making advances to buy power , but we want to get out of that business and to stop the $ 4 bn plus drain on general fund from arranging an interim loan . "
what is the credit risk from industry or other large users cherry picking or self - selecting ?
" there are limits on the options out there . ablx has limited the ability of people to opt out of the system . if you do allow them to opt out , what do they have to pay to preserve the revenue stream ? the agreement between the dwr and the puc will say that , through a financing order , we will get you the revenue to service the bonds , even if it adjusts rates . this will be a covenant that the money will be made available . "
if an initiative is launched could it create enough uncertainty to have an effect on abix or the bond issuance ? what about " harvey proofing " ? what is the direct state participation ?
" the state ' s role is infrastructure and economic development . bonds will be issued in name of dwr only to pay for power the state is buying , not to repay utility deb . i don ' t think the state will repay utility debt . the state can buy power in or out of chapter 11 . there will be no participation by the state bank . i know harvey well , and he and i agree on a number of things . for example , i am cosponsoring the public power authority . we should not put the state in the business of refinancing utility debt . i don ' t think most consumer groups realize that we are selling bonds to pay for power . i very much want , and it is in my interest , to repay the general fund . at the same time that this office is financing the purchase of energy , the fundamental problem is the price we are being charged by the generators - the ransom that is being demanded by the generators . i agree with harvey that as of this current time the generators are winning . we will have to consider excess profits taxes , or if the generators continue , they have increased their prices tenfold . the generators they bought a set of plants for $ 3 . 1 bn . since january the state has spent over $ 4 bn . if the generators don ' t take their foot off our throat , they may leave us no option but to take back plants under emergency power . so let them justify those rates . what causes the problem is the generators jacking up prices to the point where they will make us do something about it . "
what is the " measurable size premium " that will have to be paid based on the most current estimates of bond issue size ?
" measurable is the wrong choice of words . we don ' t know how many basis points . if it is more than $ 10 bn , we will begin to feel it .
also , i am not for that proposal to allow the utilities to pay off the generators over 12 years with a 2 - year grace period . they should work that out themselves , not on the backs of ratepayers . the perspective here is that they did very , very well in 1996 , 97 and 98 . they upstreamed billions . "
california update 4 / 05 / 01
below is the transcript of an interview conducted yesterday with state treasurer phil angelides :
summary :
? bond issuance to be $ 10 b with 10 - 15 year term , 70 % tax exempt and 30 % non - exempt
? angelides in favor of wind fall profit tax
? opposed to current discussion between davis and socal in regards to socal paying off the generators over 12 years with a 2 - year grace period
what decisions on rate components are necessary before you can sell bonds ?
" the big things we need are that the puc must enter into agreement with dwr , essentially warranting that sufficient revenues from rates will be available for purchasing power . it is really their job to define what each party needs to pay for power . we need to give assurance to the investment community that whatever the overall rate is , the state will get enough to pay its bonds . however , if the utilities challenge the decision , it could stall the bond issuance . "
what do you think will be the size of the first bond issue ?
" based on what is currently possible and what the legislature has authorized , around $ 10 bn . the puc has allowed us to sell north of $ 13 bn , but we anticipate that $ 10 bn is absorbable . until the administration provides details for this office and the public on what its costs of buying power are and what it needs in terms of funding , what will drive it is that number , not what the puc has said . the issuance may well be a single $ 10 bn issue or a series of smaller ones done together , e . g . $ 3 bn each 3 weeks apart . "
what is the total size of the market for ca tax - exempt bonds ?
" what we do normally is $ 5 - 10 bn in bonds for various revenues or general obligations . in 1997 the ca infrastructure rate reductions bonds was a $ 7 bn issuance , and this was handled well . this is not exclusively a ca market . around $ 200 bn of these bonds is sold each year . we anticipate that the bonds will be 70 % tax - exempt and 30 % non - exempt . "
what is the total of electric supply contracts that are firm enough to require funding ?
" we have estimates . the dwr is buying power , and let ' s say power costs $ 100 and its portion of rates is $ 70 . this bond issuance covers the diff between $ 100 and $ 70 . so , the bond issuance is a way to cover the gap . however , if power prices do not come down , you cannot keep borrowing . if we issue more than $ 10 bn in bonds , i have to see the whole financial plan . ( the implication is that he will not keep this plan secret . ) "
what will be the term mix of the bond issues ?
" overall term is expected to be in the 10 - 15 year range . i do not know the mix . "
do you have the ability to do bridging tax anticipation notes or anything like that to take care of the general fund ?
" the very purpose of the bridge loan is that we are taking a taxable and tax - exempt bridge loan until bonds are issued . in order for us to issue bonds , a number of steps have to occur . i would hope that the puc and dwr do what they have to do realistically by june . then the bond issuance would come semi all - at - once . ( in other words , either all at once , or something like $ 3 billion every three weeks . ) "
are all of the general funds ' assets in cash , or are some in the form of a less liquid receivable ?
" we have a lot of liquidity in real cash in general fund . we have a cash flow . we have the ability in pooled money investment accounts so that we can go out to five years . we have $ 40 bn - plus in that account . "
what is the minimum working capital required in the general fund for day - to - day operations ?
" it depends , and goes up and down . on any given day we are doing on the order of $ 500 mm . there is a $ 100 bn budget between the general funds and special fund . "
are you discussing the dwr contracting in relation to the required funding ? do you have a veto on the deals struck ?
" this is all in the administration ' s court . what we have asked for is the information . we have asked for this today by letter . we have to move from working with 3 or 4 banks to a public offering , which means public disclosure . the general fund has been making advances to buy power , but we want to get out of that business and to stop the $ 4 bn plus drain on general fund from arranging an interim loan . "
what is the credit risk from industry or other large users cherry picking or self - selecting ?
" there are limits on the options out there . ablx has limited the ability of people to opt out of the system . if you do allow them to opt out , what do they have to pay to preserve the revenue stream ? the agreement between the dwr and the puc will say that , through a financing order , we will get you the revenue to service the bonds , even if it adjusts rates . this will be a covenant that the money will be made available . "
if an initiative is launched could it create enough uncertainty to have an effect on abix or the bond issuance ? what about " harvey proofing " ? what is the direct state participation ?
" the state ' s role is infrastructure and economic development . bonds will be issued in name of dwr only to pay for power the state is buying , not to repay utility deb . i don ' t think the state will repay utility debt . the state can buy power in or out of chapter 11 . there will be no participation by the state bank . i know harvey well , and he and i agree on a number of things . for example , i am cosponsoring the public power authority . we should not put the state in the business of refinancing utility debt . i don ' t think most consumer groups realize that we are selling bonds to pay for power . i very much want , and it is in my interest , to repay the general fund . at the same time that this office is financing the purchase of energy , the fundamental problem is the price we are being charged by the generators - the ransom that is being demanded by the generators . i agree with harvey that as of this current time the generators are winning . we will have to consider excess profits taxes , or if the generators continue , they have increased their prices tenfold . the generators they bought a set of plants for $ 3 . 1 bn . since january the state has spent over $ 4 bn . if the generators don ' t take their foot off our throat , they may leave us no option but to take back plants under emergency power . so let them justify those rates . what causes the problem is the generators jacking up prices to the point where they will make us do something about it . "
what is the " measurable size premium " that will have to be paid based on the most current estimates of bond issue size ?
" measurable is the wrong choice of words . we don ' t know how many basis points . if it is more than $ 10 bn , we will begin to feel it .
also , i am not for that proposal to allow the utilities to pay off the generators over 12 years with a 2 - year grace period . they should work that out themselves , not on the backs of ratepayers . the perspective here is that they did very , very well in 1996 , 97 and 98 . they upstreamed billions . "