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LADWP $1.2B Bond Deal Stalled by City Council

A Los Angeles Department of Water and Power (LADWP) $1.2 billion bond sale to cover infrastructure upgrades and a natural gas reserve purchase was halted Tuesday by the city council, sending the proposed sale back to the city-run utility for reworking. The action, along with the LADWP oversight board being in transition, could postpone the sale for weeks if not months, a utility official conceded Wednesday.

Last month LADWP obtained the initial approval from its oversight board to sell bonds, about $250 million of which would help finance the utility's foray into owning Wyoming natural gas reserves in a collaboration with several smaller government-run utilities in Southern California, pending what is usually routine approval by the city council and mayor.

On a unanimous vote (4-0), the lame duck LADWP board of water and power commissioners acted, despite missing its chairman who resigned following the new mayor taking office July 1. All of the remaining members have subsequently been replaced by the new mayor. The bonds are part of the city-run utility's proposed $1.5 billion capital expenditures over the next two years that were approved by the board earlier in the year.

LADWP officials cited low interest rates as one of the incentives for putting together a new bond issue. Details of the proposed sale regarding terms and conditions for the bonds will be worked out in the weeks ahead. Two separate resolutions were approved -- one for $950 million to cover future power system upgrades, and the $250 million for the gas reserve purchase (see Power Market Today, Aug. 9).

LADWP General Manager Ron Deaton warned the city council Tuesday the delay in the sale could drive the city's costs up or down, depending on what interest rates do in the weeks ahead. In the meantime, the city-run utility will have to restructure the deals, the city council separately will have to approve the new five-member oversight board, and a special meeting of the newly constituted board will have to be called to deal with re-authorizing the bond sale, according to a LADWP official

City council leaders who voted to postpone the sale said their actions would not cause any financial problems for the city, according to a report in the Los Angeles Times.

LADWP's CFO has recommended that the bonds be sold on a so-called "negotiated" basis in a private sale, compared to a competitive structure. The utility's financial consultant, Public Resources Advisory Group, said when "all things being equal, a competitive sale will provide the issuer with the lowest cost of funds for the majority of issuances." However, in this case the consultants opted on recommending the negotiated approach because of the nature of the upcoming bond sales where careful coordination between the two issuances will be needed, among other things.

For example, a negotiated sale will "allow for LADWP to provide meaningful roles for small businesses, Public Resources said in a June 14 letter to the utility's CFO Ronald Vazquez. Part of the council's motivation for postponement was to get assurances that more minority and women-owned small businesses have an opportunity to participate in the sale.

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