Federal Court Rubber Stamps Secret Bailout Deal

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U.S. District Court Judge Ronald Lew rubberstamped a secretly negotiated $3.3 billion bailout deal between Edison and the CPUC, without due process

Without even hearing legal arguments, a U.S. District Court Judge this morning rubberstamped a secretly negotiated $3.3 billion bailout deal between Edison and state regulators announced 72 hours ago. Judge Ronald Lew acted without even hearing arguments against the “settlement,” which violates numerous state laws and the terms of which are already in dispute, with state regulators’ claims about the cost to ratepayers contradicted by Edison itself.

Consumer groups were outraged by the action. “This is a travesty of justice,” said Harvey Rosenfield of FTCR. “It’s not just that the terms of the deal are terrible; the terms of the deal violate state laws and regulations, and the Governor Davis-controlled PUC has no lawful authority to override state law. The PUC cannot ignore state law and hand over its regulatory responsibilities to a federal court. Nor may a federal court judge usurp state law in this way. By ignoring these issues in a rush to approve the deal, the judge has denied due process to the People of California and disrespected the sovereignty of the state of California.”

Procedural Objections to the Deal and the Federal Court’s Role:

  • The bailout deal was negotiated in secret by the PUC, in violation of state laws requiring PUC decisions on ratemaking matters to be conducted through public hearings and the opportunity for consumer groups to intervene.
  • Two parties to the case — the County of LA and The Utility Reform Network (TURN) are parties — were ignored in the settlement negotiation and did not approve the deal.
  • The bailout deal rewrites state laws protecting ratepayers. In doing so, the PUC unconstitutionally usurped the authority of the legislative branch, which refused to approve a bailout this year. The PUC has no authority to rewrite state law or approve of violations of state law.
  • 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.
  • The US District Court did not provide a full hearing at which representatives of the public could object to the deal.
  • Federal Courts are required to defer to the states in the application of state law. But the District Court approved a plan which violates state law and usurps state regulatory authority.

PUC Lied… Or Got Snookered

An indication of why court review of the deal is urgently needed came from lawyers representing consumer groups and power companies. As they noted, the PUC had originally said that the total bailout of $3.3 billion would be reduced by $1.2 billion through Edison‘s promise not to pay stock dividends for a few years. But the written agreement clearly forces consumers to pay all of the $3.3 billion. The Utility Reform Network has stated that the “CPUC either lied about or lost $1.2 billion”; the power companies, which filed documents asking the federal judge to hold off on any ruling, pointed out that the PUC‘s press statements “appears to contradict the plain language of the Agreement, and there is consequently a serious uncertainty as to how SCE’s retail rates would be set under the Agreement.” FTCR said: “There are only two ways to interpret this fiasco: either state officials are blatantly lying to the public or they got snookered by Edison‘s lawyers. Either way, it’s the same old story: the ratepayers will pay.”

Rosenfield said the battle will continue; TURN plans to appeal the decision and other legal action is expected. “This battle is far from over. As a veteran of years of legal battles with the insurance industry in which the People prevailed and got billions of dollars back in refunds, I can tell you that our cause is just, the law is on our side on this matter. I believe this dirty deal will be overturned.”


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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