BAILOUT WATCH: Keeping an eye on the energy industry and the politicians
Bailout Watch #33 – Apr 16, 2001
The Governor puts his foot down!?! Yesterday’s San Francisco Chronicle reports that, prior to filing for bankruptcy protection, PG&E’s demands during bailout negotiations with the Governor were so excessive that even Giveaway Gray wouldn’t agree. We wonder if the Governor leaked the PG&E proposal to the Chronicle to deflect some of the pressure on his Edison bailout plan — and as an opening move in new negotiations between the Gov and PG&E. Because word is that PG&E will take the Edison deal from the Gov as a way out of bankruptcy. They get out with an absurd bailout (if slightly less excessive than their wish list), the Governor appears to have stood up to their unrealistic demands and everyone’s happy. Except, that is, for anyone who has to pay an energy bill; that’s why consumer groups will soon intervene in the bankruptcy proceeding.
The layaway plan. In the Governor’s Edison Bailout Plan, the rate hikes will begin as soon as the legislature and PUC give their stamps of approval — by mid-August– because Wall Street wants quick action. But the transmission purchase is given a two-year timeline. One would guess that Edison will hold on to that asset’s regulated rate of return for as long as they can. It’s the opposite of the no-money-down deals for TVs and new cars. Pay now, get later. (This is a good time to remember that Governor Davis’s advisors include three guys with really, really close ties to Edison.) Governor Davis’s negotiating team got us a layaway plan in which we fork over billions to Edison now and get the goods in a couple of years. Of course, we could end up without the transmission lines either, even if it’s promised in the law (see The Fine Print below). Remember the statutory 20% rate reduction promised as part of deregulation? A hot dog delayed is a hot dog denied.
The Fine Print. Please read a clause called "Back-up Transaction" in the Edison Bailout Plan. Here’s a scenario to chew on: The legislature authorizes the bailout, and reluctantly agrees to buy the transmission lines in the deal. Then, two years later, Edison and anti-public ownership politicians quietly lobby FERC or a court to block completion of the grid sale. Under the MOU, this is known as a "Qualified Triggering Reason," meaning California has to look for another asset to turn into a hot dog. Edison’s Hydro plants aren’t worth close to the amount we’re paying for the transmission sale, so, as the MOU allows, Edison must pay us back by selling power at regulated rates, for which their profit margin cannot drop below 11.6%, according to another part of the MOU, for some extended period beyond 2010. So 15 years later we’ll have handed Edison $15 billion above costs and reasonable profits (not to mention the untold billions we will have paid to out-of-state generators) as a result of their "deregulation" plan and all we’ve done is saved Edison from the horrors of deregulation by creating horrors for everyone else.
No hot dog for Hertzberg? Assembly Speaker Robert Hertzberg is the Southern Californian-in-Chief who will be responsible to protect his constituents from this massive business and consumer bailout of Edison. But, so far, Capitol mumblings say that the Speaker is on board for the bailout, but not certain that the Assembly will go for the acquisition of the power grid, leaving us with…nothing. Hearkening to the classic analogy for the energy crisis — I give you a dollar, you give me a hot dog — we might give the dollar (that is, 5 billion of them) and just get a bun. Your constituents won’t accept a Bailout, Bob.
If you thought paying your state taxes was unpleasant this year, just wait till next year. Last week, Governor Davis requested another $500 million of taxpayers’ money to pay outrageous prices for electricity. We could have built ten state of the art energy plants for what we’ve paid the thieves since January 18. Provided health care for the year to 25% of the state’s uninsured. Schools. Roads. Each day that we pay the Texas energy companies their windfall power profits, we cancel another state program. Despite the Governor’s pledge to replenish the treasury (reimburse taxpayer money with ratepayer money), the state will never be made whole unless we get the excess profits back from the generators. But will the Governor be as aggressive with their windfall profits as he is with Californians’ hard-earned wages?
568 Days Until November 5, 2002