Electricity Bond Issue Delay Seen

California’s giant electricity bond issue may be sold as late as October and will be about $1 billion more than predicted earlier this month, state Treasurer Phil Angelides told potential Wall Street investors on Friday.

Angelides attempted to address investors’ concerns about the now $13.4-billion bond issue, particularly regarding the safety of revenue pledged to repay investors. But many investors said questions remain.

“They aren’t out of the woods yet by any means,” said Steve Galiani, managing director for Wells Capital Management, which manages about $2 billion in California municipal bonds. “It remains to be seen whether they will get this deal to market by late October, with a clean legal opinion and a good rate.”

In a morning conference call with managers of large mutual funds--prime customers for the bonds--Angelides said a prospectus for the deal won’t be available until August and the sale could be scheduled more than a month later than originally anticipated.

That’s because the state Public Utilities Commission still must put in place a rate agreement and approve other contracts to help protect the revenue earmarked to repay the bonds from challenges in U.S. Bankruptcy Court.

Plans call for the bonds to be repaid with a specified portion of future rates collected from the state’s utility customers.

Angelides said the PUC is expected to take action in July on several agreements designed to shore up the revenue.

However, even after those agreements are obtained there is still a period of about 60 days afterward when legal challenges to those agreements can be filed. That could push the bond sale into October, he said.

Specifically, some investors are still concerned that creditors in the Pacific Gas & Electric Co. bankruptcy, or creditors in a potential bankruptcy by Southern California Edison, might try to claim that the portion of consumers’ electricity payments earmarked to pay back the energy bonds are instead part of a bankruptcy estate. That would raise questions about whether buyers of the electricity bonds would be paid back in full.

“These rate agreements will be very important to investors,” Angelides said. “We are working very closely with the PUC to move these issues forward so we can have timely issuance of the bonds.”

Timely issuance is even more important now that the state expects to borrow $5 billion via a bridge loan from several large banks by early July. That loan would be paid back with money from the bond deal.

The average interest the state will pay on the bridge loan is currently estimated at about 4.55%, but that rises to 7% after November and could rise as high as 9% later next year if the bonds aren’t sold.

Proceeds from the bond deal will reimburse the state’s general fund for the estimated $8 billion it spent to purchase electricity for the utilities when power costs skyrocketed last year. It also will give the state funds to buy more power if needed.

Angelides said Friday that the $13.4-billion deal will include $10 billion of tax-exempt bonds, both variable and fixed-rate.

“We are trying to put some meat on the bones of the schedule for these bonds and the structure,” he said.