The 1998 Ballot Measure to Protect Ratepayers

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Proposition 9 — sponsored by FTCR, The Utility Reform Network, Consumers Union and The Public Media Center — would have provided consumer protections and rate relief from the California deregulation law. The initiative was opposed by the state’s three utilties, which spent $40 million against the measure, as well as the state Democratic and Republican parties and Gubernatorial candidates Gray Davis and Dan Lungren.

Below is a series of questions and answers about the initiative.

Q. Does Proposition 9 undo deregulation?

A. No. Proposition 9 is a surgical reform measure which will allow consumers and small business to share in the benefits of competition. In fact, the initiative will actually stimulate competition. Presently ratepayers who wish to choose a different company than the three former monopoly providers still must pay a subsidy tax to the old monopolies. Consequently, few competitors have actually offered electricity to residential or small business consumers. By ending these anti-competitive subsidies, Proposition 9 allows other electricity producers to compete and offer their electricity to consumers.

Q: How much of an average monthly electric bill reflects the cost of electricity at the power exchange?

A: 20%, on the average, though it varies significantly from month to month.

Q: How much of an average bill reflects the Legislature’s $28 billion bailout of the three monopoly utility companies and their shareholders?

A: An average of 42% (44% for PG&E, 50% for SCE, 32% for SDG&E).

Q: What does the bailout tax actually bail out?

A: On average, 40% of the bailout tax is to pay off bad investments in nuclear power. 20% pays off non-nuclear “stranded assets” — plants that are old and can’t compete in the marketplace — such as old coal power plants. 40% is used to subsidize “qualifying facilities,” which include renewable energy sources such as solar, wind and geothermal.

Q. Weren’t the utilities forced to build these power plants?

A. No. The only involuntary purchases made by the utilities were the “qualifying facilities” contracts entered into according to state and federal policies at the time. Prop. 9 allows cost recovery for these contracts. No other contracts or plants were forced upon the utilities.

Q: The utility companies claim that we have always paid these new charges. Is this true?
A: No. In addition to the bailout tax, The 1996 legislation added several new charges to ratepayers’ bills. AB 1890 allowed utilities to pass on additional charges to consumers: AB 1890 granted PG&E $492 million for customer service expenses, even though four months earlier a PUC hearing judge rejected such a request as unreasonable; AB 1890 authorized the monopolies to pass on to ratepayers an estimated $100 million in employee costs created by anticipated corporate downsizing; and AB 1890 allows PG&E to pay down debts with $720 million worth of customer overpayments and gives SDG&E $98 million in overpayments.

What we have always paid are excessive rates to cover the cost of obsolete power plants and other mistakes made by the utility companies. The purported consumer benefit of deregulation was the ability to choose energy companies whose wise and efficient managerial and executive decisions enable them to offer lower rates. Instead, under the bailout legislation approved in Sacramento, we are forced to pay rates 40% higher than the national market average as a subsidy to “deregulated” utility companies to continue to pay for their mistakes. Moreover, before the bailout scheme was hatched, electricity rates were scheduled to drop by 15% in 1998; the Legislature canceled those savings.

Q: Can consumers avoid the bailout by switching to an alternative electricity provider?

A: No. The “Competition Transition Charge” or “CTC” is a “non-bypassable” charge on every small business and residential ratepayer bill, no matter who supplies the electricity. This means that it will increase everyone’s rates no matter which utility they buy power from.

Q: How does Prop 9 stop the bailout?

A: The initiative prohibits the utilities from forcing consumers to bail out $7.5 billion worth of utility company bad investments in nuclear power plants. Nuclear plants constitute roughly 40% of the bailout. Under Prop. 9, charges for inefficient non-nuclear power plants — about 20% of the bailout — cannot be passed through to ratepayers until state regulators hold public hearings on each plant and decide whether pass-through is justified. Finally, “qualifying facilities” contracts that the utility companies were forced to purchase by state or federal laws may be passed through to ratepayers. These contracts are worth approximately $11.2 billion.

Q: What about the “10% rate reduction” on our current utility bills?

A: That’s a trick by the Legislature designed to disguise the cost of the $28 billion bailout. And it’s not even a real 10% reduction. The Legislature authorized the utilities to sell bonds to cover the cost of the rate reduction; small business and residential ratepayers must repay the bonds with interest. A new charge on monthly electric bills — the Trust Transfer Amount (TTA) — pays for the phony rate reduction. For every $1 in savings, we will pay $3 in charges for repayment of principal and interest on the bonds. This injustice is visible on your bill: the TTA charge is always higher than the amount of the “Legislated 10% Reduction” that appears on the bill. The TTA charge will continue through 2008.

Q.What if I don’t pay the bailout tax or the TTA?

A: The utility company will shut off your power.

Q. Will the State of California or taxpayers be responsible for paying for the bonds if the initiative passes?

A: No. The law that authorized the bonds specifically states that they are the responsibility of the utilities, not the state. Section 841 (d)(1) of the original legislation — and every bond sold — states that “Neither the full faith and credit nor the taxing power of the State of California is pledged to the payment of the principal of, or the interest on, this bond.” That is why these bonds have retained a AAA rating – a rating higher than that of the State itself. Finally, if a court rules that these bonds must be paid by ratepayers, Prop. 9 requires the utilities to credit ratepayers an amount equal to the TTA. No court will rule that these bonds should be passed on to the state and the taxpayers.

Q. Does Prop 9 hurt schools?

A. No. More dollars in consumers’ pockets means increased sales tax revenues. That revenue “would increase state spending on schools,” according to the State Legislative Analyst’s Office. The utilities will pay lower taxes because ratepayers will not be giving them bailout cash. The bailout money will reappear in state and local coffers as sales tax and revenues from increased profits of other businesses. School funding will not change.

Q. What does Prop 9 do for the California economy?

A. Prop 9 immediately infuses the California economy with billions of dollars which would have otherwise gone to three private companies with substantial investments out of state and overseas. These dollars will be a boon for consumers and businesses alike, and will therefore create jobs. Additionally, by substantially lowering utility rates and increasing competition, California will become a more desirable location for new businesses.

Q. How does the present deregulation law affect publicly-owned municipal utilities (DWP, SMUD, etc.)?

A. Because AB 1890 unfairly advantages investor-owned utilities by infusing them with billions in bailout cash, publicly-owned utilities will be placed at a competitive disadvantage when they open their markets to competition, which could occur in 2000. Without Prop. 9, the three private utilities will be in a position to lure lucrative industrial contracts and many smaller customers from the municipal utilities. This will lead to higher prices for everyone else. Ultimately, the publicly-owned utility companies will be forced to sell themselves to the private utility companies. By cutting the unfair subsidy of the three private utilities, Prop. 9 presents the publicly-owned utilities with the opportunity to compete fairly in the deregulated market without having to levy new charges.

Q: Will the initiative undo any of the environmental protections contained in AB 1890?

A: No. The few crumbs given to renewables in the deregulation deal are untouched by Proposition 9. Additionally, Prop. 9 permits utility companies to recover the cost of mandated contracts , some of which encourage the use of renewable energy.

Q. Won’t Prop 9 be delayed in court?

A. It has become a common practice for the losers in initiative campaigns to sue to block implementation of voter-approved initiatives — Prop 13, Prop 103, etc. The utilities’ arrogant threat to block the will of the people will be disposed of in one lawsuit, which will be decided within a few months of the initiative’s passage.

Consumer Watchdog
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