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California power crisis could deepen if DWR revenue bonds are not issued, Moody’s says

New York, April 09, 2001 — The California power crisis could further deepen in the wake of the Pacific Gas and Electric (PG&E) bankruptcy if the state Department of Water Resources (DWR) is not permitted to issue state revenue bonds for power purchase, predicted Moody’s Investors Service today in a major teleconference geared to the investor community.

“We also note that if a settlement between the state and PG&E is not struck and accepted by the bankruptcy court, California consumers could find themselves facing the possibilities of blackouts this summer,” stated Senior Vice President Dan Aschenbach, who hosted the teleconference with Managing Directors Susan Abbott and Renee Boicourt.

Aschenbach has also co-authored a soon-to be released report on the subject. During the teleconference, Moody’s analysts noted that if the DWR can’t issue revenue bonds, then the state would be limited in its ability to buy power for California consumers, thus forcing the state to ultimately raise rates or tap the cash surplus of the state’s general fund – both politically unpalatable options.

“Without the issuance of state DWR revenue bonds and since there is no price cap on the wholesale marketplace, the state’s electric customers face rate increases that could exceed 100%,” explained Aschenbach.

As for any potential draining of the state fund, Moody’s analysts said that they recently changed the outlook on the State of California’s Aa2 general obligation bond rating to negative from stable, recognizing that the deepening electric power crisis had increased the risks to the state’s otherwise strong fiscal and economic condition, notwithstanding the benefits of the sizable rate increase recently approved by the California Public Utility Commission (CPUC) and the state’s increased focus on strategies to encourage conservation.

“Our Aa2 rating on the state reflects that we remain positive about the strength of the state’s financial and economic health,” observed Ms. Boicourt. “However, the lack of progress now evidenced by the bankruptcy has the potential to plunge the state’s credit into a downward spiral if consensus is not formulated to resolve the crisis.”

The upcoming special comment, “Waiting for Cooler Heads to Prevail in the Wake of the PG&E Bankruptcy,” will include analytical commentary as well as charts and graphs on the California power crisis.