BILL ANALYSIS
AB 1550
Page 1
Date of Hearing: May 6, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 1550 (Committee on Banking and Finance) - As Amended: April
15, 2009
Policy Committee: Banking and
Finance Vote: 11-0
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill authorizes the Department of Water Resources (DWR) to
refund bonds without counting such a refund against its bond
authorization limit. Specifically, this bill:
1)Specifies that any bonds refunded by DWR, including those
bonds refunded prior to January 1, 2010, shall not be included
in the calculation of the aggregate amount of bonds that it
may issue if the bond is refunded for any of the following
purposes:
a) To obtain a lower interest rate.
b) To replace bonds with a variable interest rate with
bonds bearing a fixed interest rate.
c) To respond to a nationally recognized rating agency that
reduces or withdraws, or proposes to reduce or withdraw,
the rating assigned to securities.
2)States that DWR, before the issuance of bonds in a public
offering, is to establish a mechanism to ensure that the bonds
will be sold at investment grade ratings and repaid on a
timely basis from pledged revenues.
FISCAL EFFECT
AB 1550
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Potential savings, possibly in the tens of millions of dollars,
during the remaining 14-year life of the bonds.
COMMENTS
1)Rationale. In response to ongoing difficulties in the
financial market, DWR has sought to restructure more than $2
billion of its variable rate Power Supply Revenue Bonds to
address investor concerns. Some of these bonds have been
refinanced as fixed rate bonds and others have been
restructured as variable rate bonds with credit enhancement
provided by stronger banks.
AB1X (Keeley, Chapter 4, Statutes of 2001) authorized DWR to
issue $13.4 billion in Power Supply Revenue Bonds. Recently,
the Attorney General's Office determined that AB1X requires
that restructuring of bond debt issued pursuant to AB1X must
be counted against the $13.4 billion bond authorization limit
unless the restructuring can be shown to produce debt
servicing savings. However, DWR cannot demonstrate certain
debt service savings when it restructures to debt terms with
variable rates because, by definition, future rates are
uncertain. Therefore, because DWR's is close to exhausting its
original bond authorization and because fixed-rate terms are
not always available, DWR is effectively prevented from
restructuring its bond financing on more favorable terms. The
author contends that this bill, by not counting such
restructurings against the AB1X bond limit, gives DWR the
flexibility to restructure its indebtedness on more favorable
terms and, thereby, save money for the state and its electric
utility ratepayers. According to the State Treasurer's
Office-the sponsor of this bill and DWR's agent for bond
transactions-such terms are standard in most bond
authorization statutes and were not included in AB1X merely by
oversight.
2)Background. DWR's California Energy Resources Scheduling
(CERS) division manages billions of dollars of long-term
electricity contracts. CERS division was created in 2001 with
the passage of AB1X during the state's energy crisis. CERS
function was to procure electricity on behalf of the state's
three largest investor owned utilities (IOUs), such as Pacific
AB 1550
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Gas and Electric and Southern California Edison, which were
experiencing extreme financial difficulty during the crisis.
The CERS division is financially responsible for the long-term
contracts entered into by DWR, with funding for the contracts
provided by $13 billion in ratepayer-supported Power Supply
Revenue Bonds. However, the IOUs manage the receipt and
delivery of the energy procured by the contracts.
Analysis Prepared by : Jay Dickenson / APPR. / (916) 319-2081