It was appropriately Halloween when the clock struck midnight for California’s electricity financing woes. A short-term, $4.3 billion “bridge” loan for buying wholesale electricity supplies reverted to a higher-interest, three-year term loan, adding to the costs of the state’s foray into power buying at a time when a statewide economic summit was scheduled to take place over the weekend to re-energize the state’s economy.

Aside from the $10 to $12 billion in electricity wholesale supplies that need to be repaid to the state treasury, California is facing a budget deficit now estimated at $14 billion for the next fiscal year (2002-03). As he prepared to get strong pressure from business leaders to cut taxes to stimulate the state’s sagging economy, Gov. Gray Davis made the rounds in Washington, DC, and Wall Street earlier last week, declaring that Calfiornia’s nagging electricity crisis has been “turned around” through a combination of new generation plants and long-term supply contracts. He told Wall Street audiences that reliability of supplies is assured “for the next few years.”

Nevertheless, a brewing financial crisis surrounding electricity is stalled in a stalemate between state regulators and the state’s power-buying agency, the Department of Water Resources (DWR), and there was no apparent movement toward a resolution of the differences. The inability of the DWR to get a rate agreement and revenue requirement from the California Public Utilities Commission has caused the state treasurer to continually delay plans for selling $12.5 billion of public revenue bonds. In turn, the bond sale delay caused the state’s interim loan to lapse into a three-year term deal.

The state treasurer continued to criticize the CPUC’s inaction as the center of the problem, although he noted that the state was technically not in default on the interim loan, so its credit rating should not be downgraded further. Earlier in the year, California’s rating was dropped a notch, and there is speculation it may go down again before the bonds are sold.

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