BAILOUT WATCH: Keeping an eye on the energy industry and the politicians
Bailout Watch #13 – Feb 26, 2001
SPECIAL EDITION: Davis Offers Edison a Full Pardon
You know its bad news when a public official makes an announcement on a Friday afternoon, hoping it gets buried over the weekend. But the Governor’s proposed ratepayer bailout of Edison was worse than even we expected. Our analysis:
* The sham transmission purchase. Buying the transmission system could lower rates and protect ratepayers against the profiteering energy companies — but not under the Governor’s plan. He’s proposing that the ratepayers pay 2.3 times the estimated book value for the transmission system, an unconscionably inflated price. Moreover, the Governor intends to lease the grid back to the utilities. Thus the ratepayers will have no control over the grid, which was the only advantage to purchasing it in the first place. The utilities will control it, and the cost of the lease will be passed on to ratepayers. (But the state will pay for upgrading the system). Net result: a sham transaction that bails out Edison. Cost to ratepayers if the other utilities get the same deal Edison got from Davis: approximately $10 billion, including bond interest.
* The utilities and their shareholders pay nothing — in fact, they make money. They reaped the rewards of deregulation for the first three and one half years: $20 billion in ratepayer subsidies, higher profits, dividends, executive pay. They are sitting on $30 billion in assets and cash. And recent audits show that they could have acted to prevent their current fiscal problems. But, under the Gov.’s plan, Edison will not shoulder one penny of its losses: all that the parent company must do is give back the refund for the utility’s tax overpayment — which they owed anyhow. (Query: was the overpayment a deliberate effort to evade regulators?). Worse, if Edison and PG&E are allowed to keep roughly $3 billion each in revenues from their own power sales, the utilities end up with billions of dollars more then they had before the "crisis" began — pure profits.
* Phony concessions. The Gov. claimed that as part of the deal Edison agreed to sell its internally-generated power to ratepayers for ten years on a cost-plus basis. That’s no concession: Edison’s rates are already regulated on a cost-plus basis, and with the state involved in purchasing electricity for Edison, there is no chance that Edison would be deregulated in the future. The Gov. also said it was worth the bailout to settle Edison’s lawsuit seeking a rate increase. But Edison was going to lose that suit anyhow.
* No Restrictions. When the US government guaranteed private loans to Chrysler, it got full value for its guarantee in the form of stock warrants. Chrysler also reduced its CEO’s salary to $1, gave unions a seat on the board, was required to make monthly reports to the Treasury Dept. Under Gov. Davis’s plan, there are no concessions, nor any restrictions on Edison’s activities, such as a ban on political or charitable contributions during the length of the bailout bond repayments.
* "Voter Proof." In the ultimate insult to California voters, the plan is said to contain provisions which attempt to preclude voters from overturning the bailout at the ballot box next year.
* Bailout does nothing to solve the energy problem. Bailing out the utilities will do nothing to address the energy crisis caused by deregulation — profiteers manipulating the price and supply of electricity to obtain windfall profits.
Summary: A FULL PARDON for the utilities’ deregulation fiasco. Under the Gov.’s plan, ratepayers will get it coming and going. If California hadn’t deregulated at all, ratepayers would have actually received $9 to $10 billion in rate reductions, as certain long term power arrangements expired. Instead, ratepayers were forced to pay $20 billion to the utilities to subsidize their entry into deregulation, after which we were supposed to get a 20% rate reduction. Instead, we are going to have to pay another $10 billion to rescue the utilities from deregulation. Ratepayers get nothing in exchange for this bailout. The cost to ratepayers of averting the utilities’ bankruptcy: 100%. This was not a negotiation, it was a sellout, a rout.
The Governor’s bailout. The Gov. believes he can bail out the utilities, without getting caught by the ratepayers, by amortizing the true cost of the bailout over many years, with the charges appearing in the fine print of utility bills. We think his numbers are wrong. Meanwhile, some have suggested that Friday’s announcement was timed as a special gift to Wall Street, in advance of one or more fundraisers Gov. Davis scheduled in New York this week.
Instant Term Limits. Will the Legislature pass this outrage? It’s hard to figure how any lawmaker can support such a blatant bailout. There will be hell to pay at the ballot box next year if they do.
Seize the plants. The energy generators haven’t come to the table with a fair offer for long term power contracts, and they won’t, as long as these thieves are allowed to get away with their Blackout Blackmail. Over a month ago, in a news conference, we urged the Gov. to give the energy generators a deadline, then seize the plants. The San Diego Union Tribune reports that state Sen. DeDe Alpert has taken the same position. "This should be viewed much more like a war," she said.
"We told you so" Dept.: "Like many commodities, deregulated electricity will go through ‘boom and bust’ cycles in the future." — Moody’s Investor Service, October, 1999.