BAILOUT WATCH: Keeping an eye on the energy industry and the politicians
Bailout Watch #85 – Oct 24, 2001
Edison rolling in $$$. In the third quarter of this year, Southern California Edison, which is set to receive a $4.9 billion bailout courtesy of the Davis PUC unless we stop it in court, saw its profits rise nearly 280% over the same period last year. That’s because it is collecting excessive rates for electricity although the price has dropped dramatically in recent months. Under state law, the rates should be reduced… but Davis and his appointed Commissioners have decided to ignore the law and let Edison keep our money.
Edison bailout will bail out Mommy. Meanwhile, Edison’s unregulated parent company, Edison International, has posted a $413 million loss for the third quarter, according to a recent corporate filing. Its management –led by CEO John Bryson (2000 compensation: $8 million) — has done a poor job in recent months–a remarkable indictment given that the parent company plundered $5 billion of ratepayer money out of the utility subsidiary during the early years of deregulation. Edison International’s management squandered their ill-gotten windfall playing roulette with ratepayer cash. Those losses started to show up this year: first they had to sell off their Edison Select subsidiary, which had become the nation’s sixth-largest residential security company with the acquisition of Westec in 1998. Then, a few weeks ago, Edison sold two foundering U.K. power plants for less than half of the $2 billion that they originally paid for the plants. If the plan to make ratepayers bail out the utility is upheld in the courts, no doubt the parent company will suck billions more out of the utility to pay off its own debts, starting the cycle of collapse all over again.
Chalk up another $8 billion rate hike for the state’s beleaguered ratepayers as a result of the latest failure by the Davis-controlled PUC to protect Californians. With ratepayers facing $5 billion in bailout charges, $13.4 billion to pay off electricity purchases this year and $50 billion in inflated electricity contracts — twenty years’ worth — negotiated by Gov Give Away, it’s no surprise that the largest power users in California now want to take advantage of lower prices in the "market" and avoid paying any of the above charges. This is known as "direct access," the part of energy deregulation that allows users to purchase power directly from an energy company rather than through the local utility. (See BW #45). That would leave residential and small business ratepayers on the hook for the entire mess. State lawmakers ordered the PUC to stop the big users from escaping back in February, but the PUC repeatedly delayed a decision on the cut-off date. Now, according to California Treasurer Phil Angelides, "the direct access stampede, which occurred as the PUC failed to act, could result in a cost shift to these consumers of more than $5 billion through 2010." He added that an additional $3.2 billion will be shifted to small consumers because big businesses will not pay to cover state subsidies of power for all consumers during 2001.
Governor Davis has a chance to fix (or nix) the power contracts. After months of defending the high-priced long-term energy contracts that lock in California’s crisis for decades, Governor Davis finally appears willing to renegotiate some of them. Since June we have been concerned about the devastating impact these contracts will have on our economy (See BW #54), and, with more bad news on the economic front, Davis needs to pinch every penny. Contract renegotiation, and the cancellation of some power contracts, is essential and entirely justified. The circumstances under which these contracts were signed (manufactured blackouts and unjustifiable price spikes and threats of worse to come) empowers the Governor to come back, thump his fist on the table, and demand fair deals from the power companies that gouged California during the deregulation disaster and garnered billions as a result. The Davis administration must do it right, though, and we’ll be watching closely to make sure that negotiations lead to meaningful changes in the contracts and substantial savings for consumers, not just window-dressing.
Judgment Day
377 Days Until November 5, 2002
