BAILOUT WATCH: Keeping an eye on the energy industry and the politicians
Bailout Watch #84 – Oct 15, 2001
Riding the bailout escalator. First it was $2.5 billion, then it rose to $3 billion, then even higher to $3.3 billion and now, according to a Sacramento Bee report, the Edison bailout will actually cost Southern California ratepayers $4.9 billion. That means the PUC settlement with Edison will cost customers $2 billion more than the utility was asking for in earlier bailout demands. While ratepayers see their bailout burden going up, it seems that Edison’s responsibility is on the down escalator. The PUC initially said that Edison promised to withhold $1.2 billion in shareholder dividends, but that number may descend to $800 million because Edison claims that the company has already withheld $400 million this year. Moreover, Edison’s promise is an empty one because the dividends that will supposedly be withheld will not be applied to the $4.9 billion debt that ratepayers are responsible for, but to a "phantom debt" never mentioned prior to the announcement of the bailout deal, and one which Edison has never publicly articulated.
If it’s bad enough for SoCal, it’s good enough for NorCal. Tickled by a newfound ability to violate the law, the PUC’s chief lawyer/negotiator (Gary Cohen, see below) is suggesting that Northern California ratepayers can be made to bail out PG&E through a similar legal-settlement tactic. The back-room Edison deal, which was delivered against the will of the people, and after a Legislative rejection of a similar plan, now becomes the template for the PG&E bailout that Davis couldn’t pull off earlier this year. Not surprisingly, Davis’s right hand man, Assembly Speaker Hertzberg, who led the legislative charge for the Edison bailout, is allegedly in negotiations with PG&E, according to Capital sources.
Which side is he on? The PUC’s recently hired Chief Counsel, Gary Cohen — the reported deal-maker in the Edison giveaway — is not your average regulatory lawyer, though he’s familiar with the territory. Mr. Cohen, a former employee of the corporate defense law firm Keker & Van Nest (also PUC President Lynch’s former firm), made a career of fighting regulators on behalf of white-collar criminals. He’s defended a commodities broker against a major regulatory action, a bond firm in a suit brought before the Securities and Exchange Commission, as well as big auto and insurance corporations. When you’re on the side of defending corporate criminals, success may be demonstrated by a quick and discreet settlement. But the chief lawyer for the ratepayers is hired to fight the utilities when they are wrong and protect the public from such things as excessive electricity rates, unwarranted bailouts and attempts to ignore the law. A secret negotiation that costs the public nearly $5 billion is no sign of success.
The fight goes on. The bailout fight is in the legal arena now. It is, on its face, a $5 billion battle that, if we are successful, could stave off a $10 billion version of this deal in PG&E territory. The consumer money involved is staggering, but underlying this challenge are major constitutional questions: does a state agency have the right to evade its own regulatory process by cloaking the bailout in a settlement of a lawsuit? Can a state agency rewrite state law through a settlement? May the federal courts ignore state law and ratify such a settlement? Why would a regulated company ever go through the formal hearing process to increase rates, when they can instead file a lawsuit and then settle with a rate hike worked out behind closed doors and with no public scrutiny? The settlement has chilling implications not only for consumer electric rates, but also other regulated products and services such as insurance premiums and telephone charges. FTCR has assembled an array of nationally-recognized lawyers who are preparing our options for challenging this outrageous deal that benefits a special interest, its executives and investors at the expense of the rest of us.
385 Days until November 5, 2002