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Fate of $4 Billion Tax Increase on Ratepayers Now in Senate’s Hands

As expected, the California Assembly late last night ordered a massive bailout of S. California Edison by its ratepayers after weeks of intense lobbying by Gov. Davis, Assembly Democrat leadership, and a $2 million per month lobbying effort by Edison and the energy companies it owes money to.

The bailout got 42 votes, all but one of which were Democrats; one Republican (Kelley) voted for the bill. The bill now goes back to the Senate, which must approve it by next Friday, when the Legislature is scheduled to adjourn.

Representatives of the Foundation for Taxpayer and Consumer Rights (FTCR), which has established a “war room” in a Sacramento hotel to fight the bailout, noted that the present version of the bill excluded residential ratepayers for the moment, placing its much of its $4 billion cost on small businesses.

Edison reaped the rewards of deregulation, it should bear the consequences, not the innocent ratepayers. The Assembly Democrats’ outrageous betrayal of the public on behalf of their utility benefactors will be brought to the voters’ attention next year,” said Harvey Rosenfield of FTCR in a statement released this morning.

“But the ultimate decision will be made by the Senate. In the next week before the Legislature adjourns, there will be a massive assault by the special interest lobbyists to shift the cost of the bailout over to residential ratepayers. The People of California must make sure their elected representatives in the Senate protect their constituents, not Edison and the energy companies.”

Plan Will Hit Residential Ratepayers

Here are the chief features of the Edison plan:

‘ Forces virtually all California businesses, including small businesses & family farms (approximately 180,000 Southern California businesses), to pay a $4.1 billion bailout tax ($2.9 billion for bailout, $1.2 billion in bond interest). These costs will likely be passed on to consumers.

‘ Allows Southern California Edison to reap extra benefits worth an additional $1 billion.

‘ Leaves residential ratepayers to potentially bear most of the costs of the $100 billion in over-priced long term contracts negotiated by the Governor this year. Now that the market price has dropped below the contract price, the big industrial users who sponsored deregulation want to get out of having to buy the expensive power from the state. This bill contains loopholes which could allow them to evade any responsibility to buy electricity purchased by the state, effectively leaving residential and small business ratepayers with the tab.

‘Says that if FERC orders energy companies to make refunds, Edison will receive up to $500 million — even though ratepayers are paying off 100% of Edison‘s debts. In effect, if such refunds are made, Edison will come out of the bailout with extra profits beyond the payback of its stated debts.

‘Gives ratepayers nothing in exchange for bailout. Instead, ratepayers get the “option to buy” the lines at $2.4 billion (twice the book value) which can only be exercised by a future vote of the legislature. (In effect, submitting the issue to Edison‘s lobbyists at a future date). In the unlikely event that such a purchase happens, any profit from the purchase need not be used to reduce Edison‘s debt or repay the ratepayers for the bailout.

‘ Nothing in the bill prevents Edison from taking the ratepayer money, then declaring bankruptcy.

‘ There are no limits on profits, executive salaries, etc. in exchange for the bailout.

Second Bailout in Five Years

If enacted, the Edison bailout would be the second paid for by ratepayers in the last five years. “In 1996, the Legislature ordered ratepayers to bail out Edison‘s pre-1996 debts so it could compete in a ‘deregulated’ marketplace. Now it is ordering ratepayers to bail Edison out of the losses it sustained in the deregulated marketplace. The first bailout cost us $10 billion. This bailout will cost $4.1 billion. The public is always the deep pocket for the stupidity and greed of Edison‘s management,” said Harvey Rosenfield. “If the Legislature passes this, the voters will take matters into their own hands at the ballot box.”

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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