Bailout Watch #37 – May 03, 2001

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

Bailout Watch #37 – May 03, 2001

Remember when we were told that it would cost less than a half-a-billion? On January 18, lawmakers authorized $400 million from the budget to cover power purchases temporarily. When FTCR objected to the bill, which rocketed through both houses in less than twenty-four hours, we were told that this was all Governor Davis would get. Well, here we are, four months and $5.3 billion later. Lawmakers are now faced with approving the largest municipal-type bond in history, with nearly half of the revenue to fill in the budget hole that is 10 times larger than originally projected. Given that slight rounding error, we must ask: What if the projections are wrong again? The main reason to issue the bonds is to replenish the state budget, which, thanks to California’s new gig as the state’s chief energy buyer, has been decimated by the obscene prices charged by power generators. Without a healthy budget surplus, important state programs are in jeopardy. After replenishing the general fund, any left over bond money (about $3 billion after expenses) will be used to buy power next week, this summer and through the end of the year — theoretically.

Wishin’ and hopin’. In fact, FTCR believes the Governor’s expectations and assumptions about energy prices averaging $195/mWh this summer are wrong. If so, by August or September (possible sooner) we will have burned through the entire $12.5 billion bond proceeds and the Governor will be forced to stick his hands back into the state treasury. Current law — AB1X — gives him that authority. So the money that we put back in the budget for schools and roads and healthcare, will be taken away again — the Governor doesn’t even need approval to double dip. So all those state programs that we’re allegedly protecting with today’s bond sale may be back on the chopping block by the end of the summer. Does this make sense? How much longer can we afford to pay the energy ransom?

In California, Duke feels the heat… With the state investigating Duke Energy’s profiteering, the North Carolina company is starting to sweat. In a recent secret memo to Governor Davis, Duke asked that the state drop all lawsuits and investigations into the power company’s gouging, according to the New York and Los Angeles Times. In a statement published on the company’s website, Duke says it will "share the financial pain of the troubled market." The trouble is, Duke and its cartel cohorts have been the ones inflicting the pain on the rest of us. Even that notorious industry lapdog known as the Federal Energy Regulatory Commission is going after Duke (albeit for a paltry $20 million). But for all its conciliatory noises, Duke, ever the arrogant outlaw, isn’t offering much in return. If this California-gouger wants to cop a plea, it can start by testifying against the rest of the gang–AES, Dynegy, Williams, etc. Otherwise, throw the book at ’em.

…while the rest of the country cools to deregulation. One of the few silver linings in the black cloud of California’s electricity crisis is that other states will learn that deregulation is inherently a disaster (unless you like paying vastly higher prices to a cartel whose only motivation is to maximize profits). According to a New York Times survey, 75 percent of public utility commissioners throughout the country feel that the California Debacle will either delay their deregulation plans or stop them altogether.

Speaking of other states, Pennsylvania’s "successful" deregulation is getting bad reviews. Once the darling of the deregulation blowhards, Pennsylvania’s plan is falling on hard times. According to the Center for the Advancement of Energy Markets, PA ratepayers who took advantage of the deregulation law’s chief promise to consumers — the ability to choose a new energy service provider — "face a high prospect that they will be dumped back to the utility they came from. Those (energy supply firms) that tested the market found they couldn’t make that much money out of it, and then wanted out," as reported by the Gannett News Service (4/27/01). This is exactly what happened to California consumers as dereg fell apart. Ironically, this concept of "choice," known as "direct access," is being pushed in California as some legislators inexplicably try to revive deregulation (Assembly Bill 21X and Senate Bill 27X) at the behest of industrial users. Deregulation and its direct access sidekick should be left on the cutting room floor.

Judgment Day
551 Days Until November 5, 2002

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