Bailout Watch #86 — Commentary by Harvey Rosenfield – Oct 29, 2001

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

Bailout Watch #86 — Commentary by Harvey Rosenfield – Oct 29, 2001

Taxation Without Representation

Not one state agency or state official is representing the interests of ratepayers or taxpayers in the litigation over the $4.5 billion rate hike to bail out S. California Edison. In fact, they’re all on the other side.

This is taxation without representation.

Under the California Constitution and numerous state statutes, the Public Utilities Commission (PUC) is supposed to protect and defend the interests of ratepayers. Indeed, that’s what it did initially when Edison sued the PUC in federal court a year ago. Edison’s lawyers demanded that the PUC raise our rates to pay off the company’s losses under deregulation. The PUC opposed the lawsuit on the ground that such increases were forbidden by California’s deregulation law, which Edison wrote and ram-rodded through the Legislature in 1996. That law ordered us to pay $22 billion in surcharges to subsidize the utilities, but prohibited further rate increases until 2002.

Blocked in court, Edison, backed by Governor Give Away, turned to the Legislature. But when overwhelming public opposition killed the Edison bailout in Sacramento last month, PUC Chairwoman Loretta Lynch, appointed by Gov. Davis, secretly instructed PUC lawyers to declare defeat in the lawsuit and give Edison the full bailout. When lawyers for TURN, a Bay Area consumer group, and Los Angeles County rushed into federal court to oppose the outrageous settlement deal, the PUC’s lawyers told the judge to ignore them, insisting that the PUC speaks for Californians. (Later, it turned out that the utter incompetence of Lynch and her lawyers in negotiating with Edison behind closed doors raised the cost of the bailout to ratepayers by another$1.2 billion). Thus did the PUC Commissioners violate the Constitution, the law and their oath of office once again, as they have repeatedly during the past five years, when they approved deregulation, allowed the utilities to sell off their power plants, allowed the parent companies to siphon billions of dollars out of the utilities, and raised electricity rates this year by an average of 50%.

We had hoped that the state’s top law enforcement official would step in to defend the Constitution and the people of California against the Edison/PUC legal deal. After all, the Attorney General is supposed to represent the interests of the People and enforce our laws, so egregiously flouted in this case. But no: in a brief filed with the federal court, Attorney General Bill Lockyer said he found "no legal basis for objection or opposition." Huh? The settlement was negotiated in secret by the PUC, in violation of state laws requiring PUC actions to be taken through public hearings and the opportunity for consumer groups to intervene. It rewrites state laws protecting ratepayers, unconstitutionally usurping the authority of the legislative branch, which refused to approve a bailout. Further, the PUC deal transfers regulatory authority over Edison to the federal court through 2005, in violation of the state Constitution, which requires the PUC to regulate rates. "No legal basis" to object? Perhaps we should not have expected prompt action from Lockyer — we’re still waiting for him to indict former Insurance Commissioner Chuck Quackenbush, who used his authority to cut sweetheart deals with insurers in exchange for $10 million in donations to a Quackenbush slush fund. But we never thought the AG would support an unlawful deal.

Who’s left to represent Californians against Edison? While not typically litigants, state lawmakers could use the power of the purse to force the PUC to obey state law and back out of the settlement. If not that form of hardball, they could at least hold a hearing — after all, the PUC in effect rewrote state law, a power that any sixth grader knows belongs to the Legislative branch, not to the executive branch where the PUC resides. But with some exceptions, like Senate President Pro Tem John Burton and Republican lawmakers like Tom McClintock, most legislators are glad that Edison got bailed out without them having to cast a vote that would be reported to their constituents.

The same disinterest goes for other state officials, and to those challenging them for public office. You might think that, if for no reason other than pure politics, people running for election next year would seize the opportunity to make a name for themselves among the voters by organizing a team of lawyers to intervene on behalf of the public. But no one wants to offend the powerful special interests.

So here we are: taxpayers pay $42 billion a year (in personal income tax alone) to the state government, which refuses to lift a finger to protect us in court. Two hundred and five years ago it was tea rather than electricity, but the principle of the American Revolution was the same as today: no taxation without representation.

And by the way, if the Edison lawsuit deal stands, next in line is Pacific Gas & Electric, which has also sued the PUC in federal court. That bailout will cost ratepayers $13 billion.

The government’s abdication of its responsibility to defend us in court leaves the task to non-profit citizen groups, whose annual budgets are usually less than what a partner makes at one of the dozens of law firms representing the utilities, energy companies and creditors.

Want an example of what we’re up against? The bills submitted by the huge law firms representing PG&E and the companies it owes money to in the PG&E bankruptcy case will give you an idea of the legal resources available to the malefactors of wealth when billions of dollars — our dollars — are at stake. Included in the $14 million bill for the first four months of legal work are: attorneys who charge $595 an hour; $7,000 for "travel time" on a plane to London; $82,000 billed for organizing legal files; $289 an hour for the 222 hours it took to set up a duplicate website for legal documents. Every bill approved by the bankruptcy court will be passed through by PG&E to its ratepayers. Since the Bankruptcy Judge has refused to allow representatives of ratepayers to intervene, a court official known as the Trustee is the only lawyer standing between us and the pigs at the trough. You can read a summary of the most objectionable legal charges at: Click on documents 2637 and 2638. Take your blood pressure medication first, though.

Now you know why FTCR has asked you to pitch in to our utility ratepayer legal defense fund. As a veteran of the dozens of lawsuits brought against Proposition 103, the 1988 insurance reform initiative I wrote, I’d stack a handful of public interest lawyers on our side against the hundreds of lawyers and law firms that represent the energy and utility companies. We won all but one of the major 103 lawsuits brought by the insurance industry, forcing $1.2 billion in premium refunds and blocking another $24 billion in rate increases. But it takes money — probably about $250,000 — to defend ratepayers against a $4.3 billion bailout. If citizen groups don’t do it, it ain’t gonna get done.

I’ll have more to say about the legal system and representation of the public interest in a future commentary.

Judgment Day
372 Days Until November 5, 2002

Consumer Watchdog
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