State Keeps Office Lights On With IOUs

By Published On: July 10, 2009

California’s energy sector may be exchanging power for paper as the state began paying utility bills for many state offices July 2 with IOUs (state scrip). So far, the IOU payments have been limited, but may mount for the energy sector if the budget crisis is not resolved, officials warn. “Most vendor payments are not protected” from IOUs, explained Jacob Roper, spokesperson for State Controller John Chiang. “Utilities are considered vendors.” In addition, he noted, landlords who lease space to state departments typically cover utilities out of their rental income, and they too are getting IOUs instead of greenbacks. “Either way it’s not good,” said Roper. “We hope to stop using these devices as soon as possible.” The state’s 25,000 buildings consume more than $500 million a year of electricity, according to the Governor’s office. That’s more than $41 million a month, not counting natural gas. The IOU payments to utilities come amid continuing struggle in Sacramento over a deepening budget crisis and a deteriorating fiscal outlook for California. On July 6, Assembly Speaker Karen Bass said that the governor was not focusing on closing the deficit, but instead holding out for reforms of state government. Bass boycotted a top level meeting on the budget. Governor Arnold Schwarzenegger’s communications director Matt David shot back, saying, “Bass can boycott budget meetings but it will not change the size of our deficit, the amount of cuts necessary, and it will not stop IOU’s from going out.” The wrangling came as Fitch Ratings Service downgraded the state’s debt rating to BBB, a couple cuts above junk status. Without budget action, the state’s “cash deficit” is likely to grow by $3 billion this month, and by another $3.7 billion in August before ballooning to $6.5 billion in September, warned Chiang July 2. The growing cash shortfall reflects deteriorating state revenue collections, according to data from the Controller, as tax collections sag amid the economic downturn. The Sacramento Municipal Utility District--which serves the state capital with its concentration of government buildings-- received $3 million in IOUs, said muni spokesperson Chris Capra. SMUD’s bank is honoring the IOUs through July 10, he said. After that, the utility plans to hold onto the IOUs and collect the interest, which is 3.75 percent. “It’s not a problem at this point,” said Capra, though he noted that the state is one of the muni’s biggest customers. He also hinted IOU payments to the utility could quickly increase because all of the different state offices in Sacramento have different billing cycles. IOU payments just began a week ago. “We’re closely monitoring accounts related to the state,” said Pacific Gas & Electric spokesperson Nicole Liebelt. “The state is a large customer.” Due to the company’s privacy policy, Liebelt said she could not confirm whether PG&E actually has received IOUs from the state, although she did note that the utility is discussing the budget situation with state officials. The Los Angeles Department of Water & Power declined to comment on whether it has received IOUs from the state. A spokesperson cited the muni’s customer records confidentiality policy. “We have a very small number of state government accounts and the impact is not material for us,” said Jennifer Ramp, Sempra utilities spokesperson July 8. “As of today, we have not received any IOU’s from the state.” State buildings are operated under multifaceted management programs. Some are operated by agencies that are financed through special funds. Others are operated by agencies financed through the state’s general fund and it’s those buildings where it appears utility bill payments are becoming ensnared in IOU payments, according to Department of General Services spokesperson Eric Lamourex. So far, because the department is not a general fund agency, Lamourex said the state is continuing to pay the utility bills for its 60 major office buildings with conventional checks. However, he said, that could change if the cash flow situation deteriorates. The state’s higher education system maintains a big stock of buildings too. The California State University system--with its 23 campuses--is continuing to pay its utility bills with conventional checks, said spokesperson Eric Fallis. That could change pending when a budget is enacted, he said. Likewise, the University of California system--with 10 campuses--has managed to keep its energy bill payments from becoming ensnared by the IOU policy, noted Roper. IOU payments for utility bills at this point are limited to buildings operated by general fund agencies, officials explained. In addition, the Department of Water Resources is a major purchaser of electricity. However, its transactions to power the state’s water supply system and to deliver power to the grid through purchase contracts entered during the state’s 2000-01 energy crisis remain unaffected by the budget crisis, according to agency spokespeople.

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