SAN FRANCISCO - California lawmakers last week gave their final approval to a bill to make it easier for the state to restructure power revenue bonds that were issued in the wake of the state's electricity crisis.

In 2002, the California Department of Water Resources issued $11.3 billion in bonds to repay loans from private banks and the state general fund incurred to buy electricity, after surging wholesale electricity prices in 2000 and 2001 outstripped the ability of the state's investor-owned utilities to pay them.

Those power revenue bonds are secured with surcharges on the electric bills of customers of the state's three major investor-owned utilities.

But the bill - which passed both chambers of the Legislature unanimously - was written to allow the DWR to continue restructuring outstanding bonds that were impaired by the 2008 credit and financial crisis.

The DWR and the state treasurer's office have been working to restructure $2 billion of the debt portfolio issued on a variable-rate basis, which has been affected by the rating downgrades of many bond insurers as well as rising liquidity costs.

The problem stems from the original legislation authorizing the bonds, which the attorney general's office said counts any debt issued for restructuring against a $13.4 billion cap specified in the authorizing legislation, unless the restructuring can be shown with certainty to produce debt service savings, according to a staff analysis prepared by the Senate Rules Committee.

"Because most of the bonds being restructured are variable-rate bonds, and because future rates cannot be known with certainty, DWR has been unable to conclusively demonstrate that its restructurings meet the savings test," the analysis said.

Only $45 million remains under the bond cap, and the treasurer's office believes it is "highly likely" it will have to convert far more than $45 million in additional variable-rate bonds to fixed-rate bonds, the analysis continued.

The bill would clarify that if the DWR refunds variable-rate debt with fixed-rate debt, or refunds debt because of changes or withdrawals of the ratings of either bond insurers or liquidity providers backing the debt, it will not count against the $13.4 billion cap

Though the bill cleared both houses without opposition, its ultimate fate is unclear. Earlier this month, Gov. Arnold Schwarzenegger said he will not sign any legislation unless lawmakers enact a complete solution for the state's entire budget deficit.

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