Bailout Watch #56 – Jun 26, 2001

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

Bailout Watch #56 – Jun 26, 2001

That electricity prices have been Artificially Increased by the wholesalers is beyond dispute. Now, as FERC bureaucrats convene a two week "settlement" conference, the question is how much of the overcharges is California going to get back. And, in a karmic twist, it’s Gov. Davis that has the most to lose from a DC deal.

Anti-DC Insiders. That’s not the current impression, of course. Thanks largely to the two aggressive PR gurus from D.C. whom Davis recently hired, Mark Fabiani and Chris Lehane, Davis has managed to focus California’s outrage on the energy wholesalers and their Washington allies, Bush, Cheney and FERC. That these two consultants are on the state payroll is yet another unfair burden on taxpayers; they’re obviously guiding the Governor’s political strategy, not developing energy policy. Paying them out of his beloved fundraising kitty would be the best expenditure the Governor could make: they’ve stemmed the Gov.’s free-fall by transforming him into David against the DC Goliaths.

Alienating Invective. Meanwhile, the energy industry is in the process of martyring the Governor with a series of television ads, paid for by the wholesalers and some Republican operatives, attacking him for his mishandling of the crisis. It’s true that Davis’s fear of offending somebody has cost us greatly, but the people behind these ads have no right to complain. Deregulation was their idea. Davis has failed to solve the crisis, but they ARE the crisis. When Gov. Davis’s PR team explains to Californians who’s behind the ads, watch for public outrage against these companies to multiply.

Applied Ineffectiveness. The Gov’s on the political offensive, but now that FERC has co-opted the overcharge issue, we’re back to relying on one of Gray Davis’s weakest skills: negotiation. After all, this is the same guy who gave away all his leverage over the energy companies last spring when he unilaterally announced that (1) the private utilities would not be allowed to go bankrupt, (2) the state would use taxpayer money to buy electricity for the utilities, (3) he would negotiate long term electricity contracts from the wholesalers, and (4) rates would not go up. So where are we now? We’ve had $6 billion in rate increases. PG&E is bankrupt. In a panic, the governor negotiated a deal to rescue Edison from bankruptcy by forcing ratepayers to pay it $5 billion, the terms of which are far worse for the public than bankruptcy could ever be and include overpaying for transmission lines. Apart from the injustice of forcing ratepayers to protect Edison shareholders and its reckless executives from their own deregulation law, the Gov.’s plan requires the energy wholesalers to forgo only 30% of what they are owed by the utilities. A similar deal to get PG&E out of bankruptcy will cost us another $8 billion. And the Governor’s team negotiated $43 billion in long-term energy contracts that are already white elephants, locking in the state energy crisis for the next decade plus. The terms of at least some of these contracts are so one-sided in favor of the energy companies as to violate state law. As far as deal-making goes, so far the Davis Administration should be charged with Aggravated Incompetence.

Absolutely Insufficient. Nevertheless, once again it’s Team Davis at the negotiating table in DC, up against the same companies that have taken him to the cleaners repeatedly over the last six months. Last week, the Governor set the amount of the overcharges at $9 billion. Where did that measly figure come from, when the state’s energy bill this year is pegged at over $50 billion, seven times what it was for 1999? Worse, this low-ball figure automatically becomes the ceiling from which the Governor will be forced to negotiate down. If the Governor cuts another bad deal on the overcharge issue, he’ll pay politically while the rest of us just pay. All in all, we’d probably be better off with attack consultants Fabiani and Lehane negotiating for California. Bonus: the Governor could then justify keeping them on the taxpayers’ dole.

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