State electricity bonds may prove attractive to investors. (Wall Street West).

The energy crisis ended last year but in its aftemath the state of California is hoisting a huge $11.1 billion bond offering to finance energy-purchase deals inked during the worst moments of the crisis.

For investors, blame for the crisis is a secondary issue. The more immediate question is whether these bonds, expected to be tax free and offered in the fourth quarter of 2002 or the first quarter of 2003, are a good buy? The experts usually advise younger, longer-term investors in all but the highest tax brackets to weight their portfolios toward stocks, which historically have outperformed bonds.

But stocks remain in the doldrums, and yields on the new state IOUs are likely to be relatively rich. They might be worth a look by a broader audience than usual, according to Robin Rapaport, senior municipal credit analyst with Payden & Rygel, the $40 billion money management shop in downtown Los Angeles.

The bonds will be paid back by statewide surcharges on electric bills. They aren't particularly risky. "Under California law, the power bonds have to be investment grade (California's general obligation bonds are rated A+ by Standard & Poor's and Al by Moody's Investors Service.). They are not going to be junk-status. They have to be structured in a way that is relatively secure, although revenue bonds (such as these) generally have a higher yield than state general obligation bonds," Rapaport said.

Some other factors might make the longterm bonds attractive. California is suffering from state budget problems, adding a hint of uncertainty to the picture, and thus higher yields.

Too, the size of the offering will be record-breaking, perhaps swamping the market. Add to that an investing public wary of the possibility of reignited inflation, and thus timid about buying long-term bonds. "There may not be enough players in the market to take down that much paper' said Rick LaCoff, senior analyst with Payden & Rygel. "That will make the paper cheaper"--and thus yield a higher return for investors. "A lot will depend on market conditions at the time, and we can't predict that."

With all that, yields on the state bonds might end up 30 to 40 basis points above normal for a state-backed bond. (A basis point is one one-hundredth of a percentage point.) Good-quality, tax-free long-terra municipal bonds were yielding a little above 5 percent last week. Not a thrill ride, but a lot better than stocks have been doing the last two years.

Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [e-mail].