Bailout Watch #27 – Mar 29, 2001

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

Bailout Watch #27 – Mar 29, 2001

SDG&E is no better than the out-of-state profiteers. In a motion filed by the Office of Ratepayer Advocates (ORA), the independent consumer protection arm of the California Public Utilities Commission, SDG&E is accused of overcharging their ratepayers approximately $100 million dollars. Like the out-of-state energy producers, the San Diego utility took it upon themselves to turn this deregulation debacle into a financial bonanza by padding profits in certain contracts. This is exactly what concerned the PUC and others who opposed the utility’s earlier requests to sign secret long-term contracts. The utilities wanted the PUC to give them full authority to sign secret power contracts, with no public review. In light of these findings, it is essential that the utilities and the Department of Water resources disclose the terms of all contracts signed with power companies.

It must be noted, of course, that SDG&E’s parent company Sempra is a big player in the unregulated side of the energy business. And this is not the first time they stand accused of misbehaving. Sempra is a defendendant in a case against manipulation of the California natural gas market. Over the last few months, however, SDG&E, PG&E and Edison have attempted to position themselves as innocent victims of a market gone awry. But we know the history: first the utilities were the profiteers ($20 Billion in the first years of dereg) and then the out-of-state energy companies took over the reins. Apparently, SDG&E has come back for more. In the words of the ORA: "The Commission must not allow SDG&E to continue gouging its ratepayers." Makes you wonder what the other utilities have been doing with our money.

So, that means the bailout is off, right? According to reports, Edison and PG&E are ready to write-off their alleged deregulation losses (approximately $6.8 billion combined according to the LA Times). Put more directly: the utilities can survive without a bailout. Hopefully that message will sink in with lawmakers. If they don’t approve a bailout package, the utilities will not go under, instead they will report the deregulation costs as a loss, as would any corporation, and move on.

Is there an economist in the house? Last week the OC Register referred to an interesting observation by some economists. According to the Register, "Economists say a healthy market for ratepayers will only come when generation exceeds consumption by at least 20 percent. " These "economists" clearly have not read the updated version of How Markets Work, because in the new edition it is made clear that unregulated markets tend toward a point at which supply meets demand. They call it efficiency. So why in the world would an electric company flood the market with their product and drive prices down? (Farmers burn their crop to protect profits.) The answer is, of course, the energy industry willl never ensure an excess of power… unless we regulate it and require additional capacity. It is foolish to think that the free market for electricity will do anything but tighten supplies, raise prices and generally stick it to the average consumer.

Judgment Day
586 Days Until November 5, 2002

Consumer Watchdog
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