Milbank Energy Update
October 7, 2002
The California Department of Water Resources ("DWR") has distributed a Preliminary Official Statement dated October 1, 2002 for the $6,000,000,000 DWR Power Supply Revenue Bonds, Series 2002A (the "Bonds"). The Bonds are the tax-exempt fixed rate bonds that are contemplated in the DWR’s anticipated schedule of Power Supply Revenue Bonds to be issued through October and November of this year that are to total $11,950,000,000.
The Bonds are preliminarily for the principal amount of $6,000,000,000, payable on May 1 and November 1 of each year, commencing on May 1, 2003. The Bonds mature on May 1, 2022. The interest rate and the pricing of the Bonds have not yet been set. The interest rate and pricing should be resolved later in October or November. The Bonds have the following ratings: A3 from Moody’s, BBB+ from S&P and A- from Fitch Ratings. The Bonds are being issued under a Trust Indenture among DWR and two co-trustees, the Treasurer of the State of California and U.S. Bank, N.A and under Division 27 (commencing with § 80000) of the California Water Code (the "Act").
The net proceeds of the Bonds are being used by DWR first, to repay outstanding loans from certain underwriters of the Series 2002 Bonds (JPMorgan Chase Bank, J.P. Morgan Chase & Co. and Lehman Commercial Paper, Inc.) and commercial banks (Commerzbank AG and Bayerische Landesbank) and second, to repay the principal of outstanding loans from the State’s General Fund.
The Bonds are payable primarily from charges to be imposed by the California Public Utilities Commission ("CPUC") upon customers (currently estimated by DWR to be approximately 10 million accounts) in the service areas of the investor owned utilities ("IOUs") (the "Bond Charges"). In the Rate Agreement with DWR, the CPUC covenants to calculate, revise and impose from time to time (at least annually), Bond Charges sufficient to make debt service payments on the Bonds and other Bond Related Costs (defined in Section 1.1 of the Rate Agreement). Under the Rate Agreement, DWR is responsible for notifying the CPUC of the amounts required to pay Bond Related Costs that are to be recovered from Bond Charges.
The Bonds are secured in part by "Revenues" under the Trust Indenture. "Revenues" include both Bond Charge Revenues and Power Charge Revenues. Bond Charge Revenues are revenues received by DWR arising from Bond Charges, while Power Charge Revenues are revenues received from DWR arising from Power Charges (defined as charges imposed by the CPUC upon customers for electric power deemed sold to customers of DWR).
Power Charge Revenues will pay for DWR’s operating expenses, including the payment of long-term contracts. Each long-term contract contains a provision requiring the payments by DWR under the contract to be paid or payable prior to payment of debt service or other payments on indebtedness of DWR secured by a pledge of revenues under the Act and other amounts in the Electric Power Fund established by the Act. The Trust Indenture establishes within the Electric Power Fund two sets of accounts for Revenues. One set of accounts, the "Bond Charge Accounts," is primarily for the deposit of Bond Charge Revenues and the payment of Bond Related Costs. Another set of accounts, the "Power Charge Accounts," is primarily for the deposit of Power Charge Revenues and the payment of operating expenses (including long-term contracts and other costs of the Power Supply Program, which was established generally to provide customers of the IOUs the net short portion of electric power).
DWR has entered into Service Agreements with SCE and SDG&E that have been approved by CPUC orders, and the CPUC has adopted a Servicing Order for PG&E under all of which DWR’s Bond Charges and Power Charges are to be collected from customers for DWR by the IOUs solely as the agents of DWR.
The Prospectus can be downloaded at http://www.treasurer.ca.gov.
Regards,
Ed Feo (efeo@milbank.com)
Doug Dunn (mdunn@milbank.com)
Steve Kramer (skramer@milbank.com)
Kevin McSpadden (kmcspadden@milbank.com)
Carla Urquhart (curquhart@milbank.com)
Orlan Johnson (ojohnson@milbank.com)
Jim Liles (jliles@milbank.com)