Bailout Watch #11 – Feb 21, 2001

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BAILOUT WATCH: Keeping an eye on the energy industry and the politicians

Bailout Watch #11 – Feb 21, 2001

$2.3 billion down the tubes.

Every few days, Bailout Watch will update the amount of taxpayer money that the state has spent purchasing power on behalf of the utilities. According to the Los Angeles Times, the state will have spent over $2.3 billion dollars by the end of this week purchasing the "net shortfall" of electricity from private energy generators. This far exceeds the $900 million authorized by the Legislature and surpasses recent projections of $1 billion per month.

No bailout, no electricity.

Somewhere between greed and thievery lies the energy generators that produce approximately 30% of California’s power. Why do these companies want a utility bailout? Well, any bailout tax paid by the consumer to the utility will be funneled to these out-of-state generators to pay them for their outrageously high priced electricity. In an interview with the LA Times, a Duke Energy spokesman said: "It’s our intent to be made whole before we sign a contract [with the state]." In other words: Energy companies won’t sign contracts without a bailout. Reliant Energy takes a different angle: they won’t make a power deal unless the state guarantees that a series of lawsuits against the company are dismissed. This is nothing less than blackout blackmail. We’ve seen the generators do this before: the rolling blackouts in January were intended to soften legislators and the voters to the need for rate hikes, according to Credit Suisse First Boston. While Governor Davis is silent about the terms of contracts (see below), the generators are not discreet with their demands.

Why don’t we hear those kind of ultimatums coming out of the Governor’s office?

If Governor Davis takes over one power plant or proposed a windfall profits tax on profiteering generators, the entire energy industry and their Wall Street cohorts will come to the table and offer fair contracts. If they don’t, then he should take over another. At current prices, it is far cheaper to commandeer a power plant and run it on a not-for-profit basis than to buy electricity on the spot market (see above). The book value of these privately owned plants is only $1.7 billion, about what we spent buying power for one month.

Rolling information blackouts.

People scrambled Tuesday to find out where Governor Davis’s staff was meeting with utility execs and energy generators to discuss the sale of transmission lines and the purchase of long term energy contracts. One can only assume that Davis’s information blackout will cost the public dearly. On Friday, he announced that the state would offer to buy the power grid, but he did not provide a price. The devil, they say, is in the details. Those details are being worked out somewhere in San Francisco at an undisclosed location. Somewhere else, the Governor’s people were negotiating with generators. Fearing that public disclosure of any information associated with these negotiations for long term energy contracts would undermine the state’s leverage, there has been a complete blackout regarding the proposals that are up for discussion. This of course begs the question: what state leverage? (see above).

Consumer Watchdog
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