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State Treasurer Phil Angelides talks about bonds, the power authority and the future

State Treasurer Phil Angelides has emerged as one of the key players in the state’s ongoing power crisis.

Earlier this year, he stepped outside the traditional bounds of a state treasurer’s role and proposed a statewide power authority that would build and control power plants. The authority,approved by the Legislature and signed into law by Gov. Gray Davis in May,holds its first meeting this month.

Angelides’ positions on the power crisis boosted his statewide standing, prompting many to say he is readying himself for a possible challenge to Gov. Davis for the Democratic gubernatorial nomination next spring.

Now he faces the task of selling the largest-ever state or municipal bond offering,up to $13.4 billion,to Wall Street. Proceeds would be used to refund the $8 billion the state has spent to date purchasing power on behalf of insolvent utilities Pacific Gas & Electric and Southern California Edison.

Angelides recently discussed the bond issue and other matters related to the power crisis in a recent interview with Howard Fine of the Los Angeles Business Journal.

With electricity spot prices coming down, more supplies coming online and price controls enacted by the Feds, have we turned the corner on the power crisis?

I think it’s way too early to say that we have turned the corner.

One vehicle you helped create is the new public power authority. How will that work?

It’s called the California Consumer Power and Conservation Financing Authority. The authority has a five-member board, four appointed by the governor. I, as state treasurer, am the fifth member. It is likely that (former Los Angeles Department of Water and Power chief and current state energy adviser) David Freeman will be the CEO and chairman.

Its mandate is to finance new energy capacity and conservation efforts, all with the goal of creating an energy reserve for the state so that we’re never again wholly dependent on the whims of a small number of private sellers of electricity. The power authority itself would sell revenue bonds, build plants and sign long-term power contracts to sell power to California residents and businesses at cost.

Obviously, the state’s bond package is the biggest thing on your plate right now. What’s the status of that?

We hope to take the bond package to Wall Street by September or early October. But first, the state Public Utilities Commission must take some actions, including guaranteeing that electricity rates will be high enough to repay the bonds. Otherwise, the rating agencies will look unfavorably on the bonds.

As to whether the bond package will cover the state’s cost, you must understand that since the beginning of the year, the state has been subsidizing electricity rates for customers of Southern California Edison and PG & E.; The key to the bond package is the assumption that the spot market rate for power will, by the end of 2002, go below the guaranteed rates.

You recently wrote to state legislators expressing your concerns about granting major electricity users the right to choose their power provider. Why shouldn’t major business customers be allowed to buy cheaper power elsewhere?

On the practical side, if big customers are allowed to leave the system, it threatens the entire financial underpinning of the bond package. And if these bonds do not sell, the state will run out of cash at some point.

But there’s a basic fairness issue at stake here, too. If the big power users bail, that leaves residential and small-business customers to pick up their tab. That could prompt what some have termed a “death spiral,” where some people leave the system, forcing rates to go ever higher for those that remain, and eventually forcing those people to leave the system, too. Also, remember, the state has been subsidizing all Edison and PG & E; ratepayers. It’s simply not fair to allow the very same big companies who pushed for deregulation in the first place to now say, “Thank you for subsidizing us for a year. Now that the bill comes due, we’re not going to pay it.”

Many say Gov. Davis waited too long to act and others say he cut some bad long-term contract deals with power providers. How would you rate the governor’s performance?

Suffice it to say that there have been a lot of mistakes made and plenty of blame to go around. The most productive thing that everyone can do now is think about what they can do in their jobs to right the ship. I’ve tried from day one to make my contributions to try to pull us out of this morass. That’s why in January I was the first to propose the power authority. It is now my job to get these bonds to market and sell them at reasonable rates.

Are there lessons to be learned from the power crisis?

If any good is to come from this crisis, it will wake us up to the fact that we had better make the investments needed to control our own destiny, rather than wishing that it will happen. We must make sure we have enough (power) generation to meet the needs of a growing population and a growing economy. And that generation should not be all fossil-fuel plants. If there’s any lesson to be learned, it’s that we cannot be too reliant on one form of energy, especially one as volatile in price and supply as natural gas. Also, we must continue with incentives to encourage conservation. n

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