Utilities Threaten Bankruptcy; Give Davis Cover for $10 Billion Bailout

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Despite substantial profit increases by the parent companies of California’s investor-owned utilities, the companies are using the threat of bankruptcy within a few weeks or months to push Governor Davis to authorize a $10 billion ratepayer bailout, through the Public Utilities Commission. The companies contend that the high prices associated with the state’s deregulated energy market have placed the utility subsidiaries of the corporations on the brink of financial insolvency.

According to consumer advocates with the Foundation for Taxpayer and Consumer Rights (FTCR), the utilities’ recent losses pale in comparison to the gains the companies earned as a result of the so-called “competition transition charge” of the last two years. The same frozen rate that Edison and PG&E blame for their current financial woes brought in an extra $17.6 billion since 1998, according to a recent TURN report. The report notes that consumers paid PG&E more than $8.3 billion in “competition charges” and Edison collected over $9.3 billion in these charges.

FTCR also noted that the utilities have not acknowledged that approximately 65% to 75% of energy purchased by the utilities is produced by power plants that are still owned by the utilities. The companies’ alleged shortfall, therefore, must be reduced by nearly three-fourths, to account for the profitability of their own power plants.

Additionally, the parent corporations of the utilities have seen profits rise in 2000:

  • Edison International had a net income of $606.9 million in the first three quarters of 2000, up from $526 million in 1999;

  • PG&E‘s net income was $753 million through September 30, 2000, compared to $538 million in 1999;

  • Sempra Energy 2000 net income increased to $334 million over $289 million in 1999.

“The utilities’ threats are political not financial,” said Doug Heller, consumer advocate with FTCR. “These companies are holding bankruptcy over the heads of public officials so they can extract another massive bailout from California ratepayers. This is a game of chicken, and if the Governor succumbs, he will use the bankruptcy threat as cover when he forces consumers into a $10 billion bailout of utilities.”

Bailout II

If the utilities succeed, this would be the second ratepayer bailout of the electric industry. The utility companies, in drafting the deregulation law, froze rates at 50% above the national price in 1996. They hedged against the risks of deregulation with a $17 billion competition tax on consumers’ bills. While the law does not allow any back-billing or other charges, regardless of any change in the market price for electricity, the utilities are now demanding a second multibillion dollar bailout in the wake of the recent spike in energy prices.

“The companies knew the risks associated with deregulation and they wrote the law to protect themselves. Now that their foolish scheme has backfired they want Governor Davis to give them another bailout,” said Heller.


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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