Electricity Rate Hikes – FTCR statement

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Today, the single greatest public policy mistake in California history — the deregulation of electricity — has become one of its greatest scandals. Governor Gray Davis has capitulated to the three utility companies and ordered what will ultimately become a multi-billion dollar ratepayer bailout.

And make no mistake about it: this is just the first installment. Once the floodgates are opened by the Governor, there will be no limit. In rubber-stamping the Governor’s rate increase after choreographing a public spectacle featuring an audit that is not even completed, the Governor’s Public Utilities Commission (PUC) has betrayed the people of California and demonstrated it will not act independently of political pressure to protect the public in the future.

Nor should the public be fooled by the ostensibly “modest” size in which this multi-billion dollar bailout is cloaked — 9%. The utility companies’ phony threats of bankruptcy over the holidays, coupled with a Wall Street ultimatum of a 20% increase, were intended to give Governor Davis political cover for such a “compromise.” But the insatiable greed of the utilities, which refuse to take any responsibility for this debacle, means that we can look forward to such rate increases on a regular basis until they are satisfied.

The people of California never asked for deregulation, were never given a vote on it, and never got a penny of the promised savings from it. Instead, electricity deregulation will end up costing them at least $31 billion — $20 billion paid so far by ratepayers to utilities in the form of the “competition tax,” or Bailout I; and another $11 billion (so far) to cover the utilities’ reversal of fortune — Bailout II. Taken together, deregulation will cost every man, woman and child in California roughly $950.

The depth of the betrayal of the public in this fiasco is difficult to comprehend. From the Legislature’s unanimous approval of deregulation in 1996, through the Governor’s action today, the state’s utility and energy companies have succeeded in forcing California consumers to bear all the risks of deregulation, while they reaped all the rewards.

And the rewards have been huge. In addition to the billions of dollars paid to the utilities through Bailouts I, Edison (a $37 billion corporation) and PG&E (a $33 billion corporation) have realized consistent profits since the deregulation law went into effect. As recently as the third quarter of 2000, the utilities had record earnings.

Edison International’s profits (net income) for the 3rd quarter of 2000 ($360 million) and earnings per share ($1.10) were the highest in the history of the corporation. Mission Energy, the SCE affiliate which owns unregulated electric generation, reported historic third-quarter profits of $191 million.

PG&E corporation’s profits through the first three quarters of 2000 ($753 million) are 40% higher than their profits for the same period last year. Operating revenues for the 3rd quarter of 2000 ($7.5 billion) were the highest in the history of the corporation and 20% greater than revenues received for the same quarter in 1999.

Now, the utility executives claim their companies are broke, and using the blackmail of bankruptcy and lights going off, have won a 100% ratepayer bailout. But who will bail us out?

Governor Gray Davis gave it all away. By taking bold action — by using his executive powers to prosecute the manipulation of prices, to seize power plants improperly kept off-line; by asking immediate legislative approval to impose a windfall profits tax and utilizing eminent domain — or even simply by threatening it, he could have backed down the energy cartel and lanced the artificial price balloon they created. By ordering the state’s three utilities to sell the power they generate with their remaining in-house plants to their core residential and small business customers, he could have kept prices for the innocent victims of deregulation at very close to the present price. (50% to 70% of the electricity PG&E and Edison, respectively, sell to their customers is generated by the utilities’ own plants). By proposing a long-term plan for public ownership and control of the energy infrastructure, he could have restored an affordable, reliable energy system in the future.

Instead, the Governor has ordered ratepayers to become involuntary investors in the utilities to keep them afloat, without even providing ratepayers with the right to repayment or stock ownership that investors normally receive. By his action today, the Governor has informed the energy industry that they may continue to plunder the pocketbooks of the people of California, because he will make the people pick up the tab, whatever it is.

Now, only the Legislature can immediately protect the public against the bailout — by reversing the Governor and providing the necessary response to protect the public health, safety and the economy. And it ought to, since it was the Legislature, awash in money from utilities, energy companies and large industrial energy users, that passed the deregulation law by unanimous vote four years ago.

But the Legislature’s record in dealing with scandals — even those not of its own making — offers reason for concern. In last year’s insurance scandal, the Legislature did nothing to address the core problem — insurance company claims handling abuses — because the insurance lobby was able to contain the scandal to Quackenbush himself. The danger is that, when all is said and done, when the elected officials’ chest-thumping is over, they will be perfectly happy to do nothing about the energy crisis, content to leave Governor Davis holding the hand grenade when it explodes.

We intend to do everything we can to urge the Legislature to protect ratepayers and adopt a comprehensive and practical plan to restore a reliable and affordable electricity system in California. It will only be as a last resort — in the event that our elected officials fail us — that we will seek to place the matter before the voters in 2002. That was the outcome in 1988, when the Legislature refused to defy the insurance lobby. The voters forced the insurance companies to issue $1.2 billion in refund checks and imposed massive regulation that has blocked over $14 billion in auto insurance rate increases. We ask all Californians to join us in this grassroots campaign — the ratepayer revolt begins today.

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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