The Northern California Power Agency’s finance committee this week decided to refund $134.9 million of variable-rate demand obligations backed by MBIA Insurance Corp.

The agency — which generates and transmits electricity for 20 member agencies across northern and central California — plans to refund $87 million of VRDOs issued in 2002 and $55 million issued in 2003, NCPA chief financial officer Donna Stevener said in an interview. Rates on the two series of bonds jumped to about 7% from around 2% after MBIA lost its triple-A ratings.

Moody’s Investors Service and Standard & Poor’s earlier this month downgraded the insurer to A2 and AA, respectively. Fitch Ratings downgraded MBIA to AA earlier in the year.

The NCPA had planned to refund only the Series 2002 bonds yesterday, but it delayed the issue after rates on the Series 2003 debt began to jump in the wake of this month’s wave of insurer downgrades. Both series will now be refunded with the sale of $150 million of fixed-rate revenue bonds around July 9. The deal includes both a taxable and a tax-exempt series.

Citi is lead underwriter and JPMorgan is co-manager. The deal will be insured by Assured Guaranty Corp.

The underlying ratings on the refunding bonds are A-minus from Standard & Poor’s, A from Fitch, and A2 from Moody’s.

The power agency will terminate swap agreements that synthetically fixed its outstanding VRDOs. The counterparties on the swaps are Citi, UBS, and JPMorgan. Termination fees will cost the NCPA about $2.5 million and get rolled into the taxable portion of the issue, Stevener said.

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