As California seeks sources of financing to buy power for cash-poor utilities Pacific Gas & Electric, San Diego Gas and Electric and Southern California Edison, the state is contemplating issuing $10 billion in revenue bonds, using a portion of the money that comes from the ratepayers from these utilities to service the bonds

Though some would consider this as a straightforward municipal bond sale, the transaction assumes the characteristics of a securitization because the bondholder in this case depends on payments that have been set aside by the legislature as well as the utility commission to pay the bonds.

However, the state would likely have difficulty apportioning the funds, experts say.

"Things that are interfering with the CPUC in its attempt to come up with that kind of an apportionment of revenues includes very importantly that it keeps on costing so much to buy the power, " said Peggy Jones, managing director utility research at Blaylock & Partners.

Moreover, this is further complicated by the fact that the state legislation allowing securitization limits the amount of bonds that could be issued by the state to what the revenue source could adequately paydown in four years. This would present a problem because given the high costs of electricity, the state would need to issue a substantial amount of bonds to cover the payments.

While the state is waiting for the bond sale to happen, it is using money from the state's General Fund to buy the power for the utilities. However, analysts say that this could only be used as an interim measure because not all California taxpayers are benefiting from this arrangement.

In related news, a bill was submitted to the California state legislature proposing that a securitization backed by the utilities' assets be done as a funding measure that would allow the utilities to recover about $13 billion. This follows a bill proposing the sale of the utilities' high-voltage transmission lines that is still pending.

But despite the turmoil, rating agencies maintain that existing California securitizations remain unaffected. In fact, Standard & Poors recently released a report reiterating the AAA' rating on the state's stranded cost bonds.

Meanwhile, transactions from Connecticut Light and Power and Northeast Utilities Public Service of New Hampshire are coming to market soon.

According to IFR Markets, the Lehman Brothers and Salomon Smith Barney-led $1.44 billion Connecticut deal is expected to come to market next week. The triple-A rated transaction is divided into five tranches with average lives ranging from 1.2 years to 8.9 years.

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