Economy Will Suffer From $6.7 Billion Transfer From Energy Consumers to Utilities and Investors

Sacramento– The complex plan (AB 2x 82) to bail out Southern California Edison introduced in the Assembly on Friday would cost ratepayers both directly through a bailout tax and indirectly through higher costs across the economy, according to the Foundation for Taxpayer and Consumer Rights (FTCR). The legislation — which is nearly as lengthy as the original 1996 deregulation bill, AB 1890, and amends more state codes than AB1890 — contains at least five separate legislative proposals. Consumer advocates fear that lawmakers are preparing to re-enact the confusion and complexity of the omnibus deregulation bill of 1996, which was supported unanimously and has become the states worst public policy disaster.

“Lawmakers have attempted to wrap the utility bailout plan in a protective covering, but the fact remains that this bill would force energy consumers and taxpayers to transfer billions of dollars to utility companies,” said consumer advocate Doug Heller of FTCR. “Before any vote on this plan every legislator should be able to say that they have read and understand the implications of all 28,000 words contained in the 79 pages of this mammoth proposal.”

Bill estimated to cost $6.7 billion

The chief purpose of AB 82xx is to bail out Edison (though the bill is written such that it could apply to PG&E and SDG&E). It would require energy consumers, including residential ratepayers, to pay a bailout tax that would reimburse Edison for its alleged “undercollection” as a result of the deregulation law that the utilities crafted in 1996. The bill does not set the amount that the public will pay to bail out Edison, though FTCR estimates the amount to be approximately $6.7 billion between the bailout tax, the transmission line purchase at twice the value of the lines, and interest. FTCR notes that none of the legislation’s authors were elected by the Edison customers who will bear the burden of this massive bailout.

Consumer advocates point out that prior to the summer of 2000, Edison and other utilities garnered approximately $20 billion above the market price for electricity as a result of the deregulation law. The bill does not specify any responsibility for Edison‘s parent company.

“The utilities did not complain about deregulation while they were profiting off it, but when their plan backfired they came running to the Legislature with their hands out,” said Heller.

Businesses will pass bailout tax onto consumers

The bill requires all ratepayers to pay the bailout tax, known alternately as a “dedicated rate component” or a “nonbypassable charge,” for two years, after which the tax will only be levied against businesses, farms and larger taxpayer and non-profit funded agencies such as hospitals.

According to advocates, although there is a superficial sense of poetic justice that some of the large energy consumers that demanded deregulation in the first place would be responsible for a larger amount of its failure, the bailout costs would inevitably be passed onto consumers in the form of higher retail costs of products and services and increased taxpayer costs associated with job losses directly associated with higher manufacturing costs.

“It’s fools gold to call this an equitable distribution of the bailout. When a supermarket and dairy farmer both are forced to pay a ten year bailout tax, the consumer pays more for milk. California’s consumers, businesses and economy should not suffer in the name of bailing out Edison,” said Heller.

Direct access will saddle residential consumers with expensive long-term contracts

Although the direct access provision of AB 1890, which allows consumers to choose a non-utility supplier of electricity, failed to provide consumers with a more affordable or reliable energy system, AB 2x 82 intends to resume that process in 2003. This will likely leave residential customers responsible for the high priced power contracts entered into by Governor Davis. As big businesses leave the utility system to the “re-deregulated” market, the average residential and small business ratepayer will be stranded with the excess power and costs associated with he failure of the state’s first foray into deregulation.

The bill also appears to revive the now-defunct Power Exchange, a key element of the failed deregulation experiment.

“Electricity is too vital to our economy and public safety to throw into the invisible hands of an unregulated marketplace. Why can’t we learn that lesson?” said Heller.

Legislation should be separated into independent proposals

To ensure that each aspect of the plan is both understood and, independently, sound public policy, consumer advocates propose to break the bill up into a series of separate proposals. The following is a non-exhaustive list of the sections of the bill that should be broken out as independent bills:

• The ratepayer bailout of the utility;
• Limits on the PUC‘s role in controlling utility companies profits (Section 18 of AB 2x 82);
• The “re-deregulation” of the California energy system, including the revival of direct access (Section 10).
• The approximately $2.4 billion purchase of Edison‘s transmission lines. Consumer advocates state that transmission system purchase should be an independently analyzed and debated proposal. FTCR advocates the consideration of a book value purchase of the transmission assets of all the state utilities; and
• The “Renewable Portfolio Standard,” or RPS (Section 9). Environmental and consumer groups support proposals already contained in legislation to decrease the state’s reliance on non-renewable energy. The RPS plan should not be used as an attempt to leverage environmental or consumer support for a bailout.

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