P.G.&E. wrote the 1996 deregulation law, reaped its financial rewards for three and one half years, and now it and its shareholders are bearing the consequences of deregulation.
Consumer advocates decried the last minute bonuses paid to PG&E management and other upper-level employees, prior to declaring bankruptcy on Friday, April 6. The Foundation for Taxpayer and Consumer Rights (FTCR) said that this act was just another display of the arrogant, self-serving corporate culture at PG&E.
“PG&E could have bailed itself out,” said Doug Heller, consumer advocate with FTCR. “With $33 billion in assets, $2 billion in cash and money for bonuses, the decision to declare bankruptcy has turned PG&E into a pariah in everybody’s eyes.”
Five years ago, P.G.&E. joined with Edison, San Diego Gas & Electric, and the energy industry to ramrod “deregulation” through the California Legislature. The law forced the utilities’ customers to pay off over $20 billion in the utilities’ bad debts, roughly $9 billion for P.G.&E. alone. The utilities went on an international spending spree, while they increased dividends to investors and increased their CEOs’ executive compensation to $2 million plus.
During the summer of 2000, the generators that bought plants from PG&E decided they wanted to cash in on the financial bonanza, according to FTCR. Using their unregulated control over our electricity supply, and by manipulating the supply of electricity to create temporary shortages, they boosted wholesale prices far into the stratosphere. Suddenly, the rate freeze that had enabled the utilities to overcharge consumers for three years had the totally unexpected effect of preventing the utility companies from passing through to consumers the higher wholesale costs of electricity.
“Energy generators sent prices through the roof while PG&E was still constrained by their own law. In effect, the muggers themselves got mugged,” said Heller.
Though they had reaped the financial rewards of the law they wrote, the utilities and the shareholders refused to accept the downside risks. They began agitating lawmakers for a bailout.
Now, P.G.&E. has decided to try its luck in bankruptcy court, where the company will argue that the deregulation law they wrote was invalid, and that the ratepayers must be retroactively forced to pay all of P.G.&E.’s losses.
Bankruptcy Beats a Legislative Bailout
FTCR notes that, while bankruptcy may be difficult for P.G.&E.’s pensioners and workers, it’s a much better forum for dealing with a utility’s debts than the Legislature. Legislative deal-making behind closed doors in Sacramento, they point out, is how California got into the deregulation disaster in the first place.
The bankruptcy court has the power to cut through the corporate shell game and force P.G.&E.’s parent firm to give the utility back the money it siphoned off over the last few years, as well as unwind any last minute feather-bedding. But it cannot rewrite the deregulation law to order a bailout, nor can it usurp the role of the state Public Utilities Commission in regulating rates. FTCR plans to intervene in the bankruptcy proceeding on behalf of taxpayers and consumers.
Click here to read an analysis and commentary on PG&E’s bankruptcy by FTCR President Harvey Rosenfield.