FTCR Letter to California Senators Opposing the Edison Bailout Bill SB 78xx

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To: California Senators

From: The Foundation for Taxpayer & Consumer Rights (FTCR)

Re: SB 78xx — Edison Bailout OPPOSE

Date: September 10, 2001

FTCR strongly opposes SB 78xx. This legislation proposes a ratepayer and taxpayer bailout of Edison. The bill (fact sheet attached) is a $6 billion economy, job and consumer-killer:

– Imposes a $4.1 billion tax on Edison ratepayers; small businesses will be most affected. Sticks residential and small business ratepayers with the $50 – $100 billion price tag for the long-term energy contracts by allowing big businesses to negotiate their own energy contracts, now that market prices have fallen. Taxpayers may ultimately be required to pick up the tab.

– Gives Edison an estimated $2 billion in additional benefits and profits beyond paying off its losses. Edison comes out better off than it was before the deregulation debacle began.

– Authorizes the bailout of PG&E and SDG&E on similar terms to be negotiated by the Davis Administration — without further Legislative approval.

Let’s be clear about the strategy behind the Assembly amendments and what it means to the People of California: Big business opposed being forced to pay for a bailout — just as the rest of California does. To win the agreement of big businesses to bear some of the cost of the Edison bailout, the Assembly allowed them to escape, at an insubstantial cost, the disastrously expensive long-term energy contracts recently negotiated by the Governor. The Edison bailout charge is a pittance compared to what the big users will save by leaving taxpayers and ratepayers holding the bag.

We just can’t afford it. With the massive rate increases already underway, and with growing signs of a serious economic downturn, many Californian consumers and businesses are struggling themselves. A bailout will increase the costs of goods and services and force people to choose between energy and other necessities. According to its most recent SEC filing, Edison is a $37 billion company, with the resources to take care of its own financial problems. The rest of us cannot afford the Edison bailout. Lawmakers will serve the public interest far more effectively by enacting no legislation than by enacting a bailout proposal.

No more hasty mistakes. There are just five days left in the legislative session. Few lawmakers have read, much less understand, the complexities of the bill. The politics of other bills — reapportionment, workers comp — are now being commingled with the bailout. This is exactly the kind of hasty, lobbyist-driven process that brought us the disastrous 1996 deregulation law. Events this year illustrate the unforeseen and expensive consequences of hasty legislative action. We urge you to vote NO on the EDISON BAILOUT.


SB 78xx — $6.1 billion Anti-California Give-Away
to Utilities, Energy Companies and Big Business

Small businesses now included in the bailout. As amended, the bill forces virtually all businesses, including small businesses and family farms — approximately 180,000 Southern California businesses — to pay a $4.1 billion bailout tax. ($2.9 billion for the bailout, a $400 million increase above the original Senate proposal, and $1.2 billion in bond interest). Your constituents will be affected: grocery stores, restaurants, dairies, larger professional offices, health care centers, gas stations, Laundromats, etc.

Assembly deal sticks small ratepayers with white elephant contracts. Big business opposed being forced to pay for a bailout — just as the rest of California does. To win the agreement of big businesses to support the Edison bailout, the Assembly bill allows them to escape, at an insubstantial cost, the disastrously over-priced long-term energy contracts recently negotiated by the DWR. This will leave leaving residential and small business ratepayers to pay the massive tab by themselves — $40 to $100 billion in inflated energy prices for the next two decades. If they can’t afford it, the taxpayers will be left holding the bag. This is exactly what the legislature did in 1996 when it ordered small ratepayers to pay off the utilities’ above-market power plants.

Bailout hurts California’s economy. Amid growing signs of a serious economic slowdown, many Californian consumers and businesses are struggling themselves already. The new bailout tax will hit small businesses particularly hard. The tax will be passed on to consumers in the form of higher prices for goods and services. That’s added on to the impact of the rate increases already imposed this year, averaging 49%. According to its most recent SEC filing, Edison is a $37 billion company, with the resources to take care of its own financial problems. The rest of us cannot afford the Edison bailout.

Ratepayers get nothing in exchange. In Sen. Pres. John Burton’s terminology, we pay the money but don’t get a “hot dog.” The bailout bill removes the exchange of transmission lines from Edison for bailout money. Instead, ratepayers get the “option to buy” the lines at $2.4 billion (twice the book value). The option can only be exercised by a future vote of the legislature — in effect, submitting the issue to Edison‘s lobbyists at a future date. In the unlikely event that such a purchase happens, Edison‘s profit from the sale of its grid is not required to be used to reduce debt or repay the ratepayers.

$2 Billion in extra gifts give Edison a windfall. The Assembly went beyond covering Edison‘s losses; it gives the company billions in additional profits:

$600 million in inflated debt and interest. By inflating Edison‘s actual debt and giving the company an extra $400 million to cover interest on the debt, the bill will leave Edison with $600 million more than the actual debt figure that Edison declared in its most recent 10-Q filing with the SEC (8/14).

$360 million sweetheart deal. Locks the state of California into a high-priced 10-year contract for electricity with an Edison subsidiary (the Sunrise plant), providing Edison with an additional $360 million above cost of service, according to TURN, over the decade.

$240 million nuke break. Continues nuclear subsidies for Edison an additional two years. This is valued, by TURN, at $240 million for Edison.

$500 million in FERC refunds. If FERC orders refunds, Edison gets to keep up to $500 million — money that should be designated to repay the ratepayers who were forced to bail the company out. In effect, Edison will get double payment — bailout money from ratepayers, and refunds from generators — for the same power.

$300 million in excess profits, overriding PUC regulation. Guarantees Edison a higher-than-appropriate rate of return (11.6% profit) that cannot be lowered by the PUC for 5 years. Office of Ratepayer Advocate (ORA) conservatively estimates this will provide at least $300 million in excess profits to Edison. With the current down turn in the economy, interest rates are dropping; yet this guarantee shields SCE from an anticipated reduction in profit margins that is appropriate to ensure just and reasonable electricity rates for consumers.

Bails out the generators. The bill purports to prevent Edison from using bailout money to pay off its debts to generators. This is a fraud: the bill allows the additional $2 billion windfall to be used to pay the power company creditors. The bill enables Edison to use ratepayer money to pay, in full, the price-gouging power companies after all.

Parent company pays nothing. The parent company sucked billions out of the utility and has now walked away from it, despite a 1988 PUC decision stating that the capital requirements of the utility shall always be the “first priority” of Edison International. (The PUC is in the process of determining whether and how to enforce that law). The bill requires no contribution from the $37 billion parent company. It only requires the parent to give back to the utility the $400 million the utility overpaid in taxes.

No requirements for restructuring. When the federal government bailed out Chrysler with loan guarantees (no taxpayer dollars were given to Chrysler), the company made a host of concessions in exchange for the bailout. This included government oversight of Chrysler management and the issuance of stock warrants to the federal government. SB 78xx contains no limit, for example, on profits — indeed, creates a floor on profits (see above). It does not limit executive salaries or require Edison management to submit a business plan to the State of California for review.

Authorizes similar bailouts for other utilities? Language in the legislation appears ro authorize DWR to unilaterally negotiate similar bailout deals with other utilities without further legislative action. (See Sec.20).

Does not prevent a bankruptcy! Edison‘s own executives have admitted publicly that the bailout does not prevent them from declaring bankruptcy. But what they haven’t revealed publicly is that Edison would gain by getting the bailout and then declaring bankruptcy in a “pre-packaged” work-out with its creditors. California ratepayers could end up paying billions to rescue Edison from bankruptcy, only to have the company file anyhow.

For more information, please contact Douglas Heller at (310) 480-4170.

Consumer Watchdog
Consumer Watchdog
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