Development of the Power Supply Program. In January 2001, Governor Davis determined that the electricity available from California’s utilities was insufficient to prevent widespread and prolonged disruption of electric service in California, proclaimed a state of emergency to exist under the California Emergency Services Act, and directed the Department of Water Resources (“DWR”) to enter into contracts and arrangements for the purchase and sale of electric power as necessary to assist in mitigating the effects of the emergency (the “Power Supply Program”). The Power Supply Program has also been implemented under legislation enacted in 2001 (Statutes of 2001, First Extraordinary Session, Chapters 4 and 9, the “Power Supply Act”) and orders of the California Public Utilities Commission (“CPUC”).
Financing the Power Supply Program. The Power Supply Program was initially financed by unsecured, interest-bearing loans from the General Fund of the State (“State Loans”) aggregating approximately $6.2 billion (of which $116 million has already been repaid). Advances from the General Fund ceased in June 2001, after DWR arranged secured loans from banks and other financial institutions, producing net proceeds aggregating approximately $4.1 billion (“Interim Loans”). The Power Supply Program is also funded by revenue from electricity sales to Customers; cash receipts from such revenues have aggregated approximately $3.7 billion through January 31, 2002.
DWR is authorized by the Power Supply Act to issue up to $13.4 billion in revenue bonds to, among other things, repay the State and the Interim Loans. Sale of the bonds had been delayed since mid-2001 by a number of factors, including potential legal challenges and CPUC Actions. At the date of this Official Statement, the State expects to sell approximately $11.95 billion of taxable and tax-exempt bonds in fixed and variable rate modes. The variable rate bonds are expected to be sold during the week of October 21 and the fixed rate bonds are expected to be sold during the week of November 4.
Effect on the County. These developments at the State level may, in turn, affect local governments. The County receives approximately 12 percent of its general fund revenues from property taxes and a significant portion of the balance of its revenues is provided by the State. The State’s revenue transfers to local governments could be reduced or the State could decide to shift certain of its financial obligations to local governments to compensate for large expenditures for power. The weakened financial situation of the investor-owned utilities (“IOUs”) could cause a failure or delay by the IOUs to pay real property taxes or other payments due or allocable to the County. The County is served by Pacific Gas & Electric Company (“PG&E”), which is the County’s fourth largest taxpayer. On April 6, 2001 PG&E filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On May 16, 2001, the Bankruptcy Court ruled that PG&E could pay its outstanding property taxes and such payment was made to the County. PG&E has paid the County both installments of its property taxes as well as any tax penalties and fees for the tax year 2000-01 and is current on its obligations for the 2001-02 tax year. No assurance can be given that PG&E will continue to pay its property taxes in a timely manner. In addition, no assurance can be given that voluntary or involuntary bankruptcy proceedings will not be commenced by or against PG&E.
Recent Market Conditions. The power situation has changed materially in California since last year. Electrical power shortages are no longer a substantial threat due to the State’s acquisition of long-term energy contracts, increased power generation with the opening of new power plants in the State, and decreased demand due to conservation efforts. Electrical rates for the County have stabilized and are expected to remain at current levels through next fiscal year. Natural gas rates have dropped significantly and the County is planning to lock in rates for the majority of its natural gas needs next fiscal year at 30% to 40% reductions through a multi-year contract with the Association of Bay Area Government’s Power Pool and a one year contract with PG&E. To the extent natural gas prices increase, however, the County benefits from increased franchise fees collected from natural gas plants in the County.
To date, the County has not experienced power shortages; however, any future temporary reduction or loss of power could materially adversely affect the operations of the County.
