BAILOUT WATCH: Keeping an eye on the energy industry and the politicians
Bailout Watch #25 – Mar 26, 2001
Gov. Running Out of Alternatives to Emergency Action Against Wholesalers. The estimated $23 billion it will cost the state to buy electricity for 2001-2002, which the Gov.’s aides whispered to lawmakers late Friday night, would increase the monthly utility bill on average $96/month — a 160% jump. If the Governor seeks to reduce these monthly prices by borrowing the money through bonds, the total cost with interest to ratepayers will rise to about $40 billion, and would seriously impair the state of California’s credit-worthiness. In short, after three months of paying blackout blackmail, Gov. Davis has little choice but to take on the power plants directly if he intends to meet his pledge of no rate increases. It’s high noon for Davis.
No, a rate hike is not inevitable. The Gov spent Friday holding a $10,000-a-head fundraiser on a golf course in Palm Springs. His aides, who dropped the rate-hike bomb that same day, claimed the Governor was unaware of their $23 billion estimate. Yeah, right. No doubt the Gov wants to be dragged kicking and screaming into a rate hike. And no doubt he’d love to have the Legislature, or better yet, the energy industry’s scapegoat du jour, PUC Chair Loretta Lynch, "give him no choice." But guess what? Davis has a choice, and we’re going to hold him to it. Indeed, it’s the only choice consistent with his political survival: crack down on the energy wholesalers. 83¢ of every ratepayer dollar used for wholesale power purchases is overcharge. Here’s the plan: Give the energy cartel five days to provide refunds and a fair price. If they don’t, impose a retroactive windfall profits tax. If they turn off the juice again: send in the Guard, seize the plants, operate them on a cost basis (prices will plummet). We can figure out their fair value under eminent domain in the courts later… with offsets for massive overcharges between January, when the state began buying electricity, and now.
The utility bailout is DOA. There’s just not enough money to bail out Edison and PG&E, even if the politicians were suicidal enough to want to. They’re gonna have to bail themselves out, and they can. In fact, the utilities owe ratepayers the $20 billion in "stranded assets" paid over the last three and one-half years, in exchange for the statutorily-promised 20% rate reduction. That’s a claim that will be asserted in litigation (or bankruptcy).
Will the Legislature bail out the Governor? A number of legislators are claiming that electricity rate hikes are inevitable. As Governor Davis tells the press that his "hopes and expectations" are that $23 billion will drop out of the sky to pay off the energy cartel, Legislators are issuing sober warnings about major price increases for consumers. The problem with the Legislators’ statements is that each of them miss the most important part of the rate hike conclusion: there will be major price increases for consumers only if Governor Davis continues to cower in the presence of the power companies. Legislators ought not be the become the fall guy for the Governor, who says that he’s fighting to avoid rate hikes while he does everything in his power to create them.