Utilities Will Face California Voters on $28 Billion Bailout Tax

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States, Congress, Wall Street Watch Closely as Utilities Promise to Spend $50 Million to Defeat Measure

Setting the stage for a debate likely to dominate the coming election season and influence the nation, the California Secretary of State today announced that the citizen-based CUT initiative to stop the $28 billion utility bailout tax has qualified for the November ballot.

The “Utility Rate Reduction and Reform Act,” sponsored by Californians Against Utility Taxes (CUT), reverses portions of 1996 legislation which, under the guise of “deregulation,” ordered a massive subsidy by small business, homeowners and renters of the state’s three private utilities: So. Cal. Edison, Pacific Gas & Electric and San Diego Gas & Electric. By eliminating the bailout provision, the CUT initiative will allow ratepayers to shop in a truly competitive market for electricity. According to a recent analysis prepared by California Energy Commission staff, the CUT initiative will save ratepayers between 18% and 32%.

The outcome of the closely-watched contest will have a powerful impact on other states contemplating “deregulation” of the utility industry.

“Like tax cut Proposition 13 and insurance reform Proposition 103, the people of California are going to protect themselves when the Legislature is so beholden to the lobbyists that it would rig a deal which so clearly hurts consumers,” said Harvey Rosenfield, co-author of the CUT initiative and the advocate who wrote Prop. 103. “To sell the deal they tricked consumers with a phony rate reduction that consumers must repay with interest,” Rosenfield said.

“The CUT initiative will make the privately owned utilities pay their fair share for their own mismangement and bad investments in nuclear power,” said Nettie Hoge, executive director of The Utility Reform Network (TURN). “They made mistakes and now must accept responsibility. The private utilities owe it to the ratepayers of California,” said Hoge.

The CUT initiative is a simple and specific reform of the 1996 deregulation law. It will stop the utilities from forcing a new tax on all consumers’ bills regardless of the utility come they choose. The CUT initiative stops the utilities from using a second surcharge on bills to make consumers pay their own so-called rate reduction. By ending the unnecessary surcharges and bailout tax, the initiative will lower electricity rates by 20%. The initiative includes provisions to protect the privacy of customer information.

CUT is comprised of The Utility Reform Network and the Foundation for Taxpayer and Consumer Rights. It is supported by Consumers Union, the non-profit publisher of Consumer Reports magazine and the Oaks Project, the volunteer-based civic group responsible for spearheading the initiative signature drive.,


Volunteers Join in 10 Week Campaign

The taxpayer and consumer coalition sponsoring the CUT initiative turned in signatures of 713,000 Californians after an extraordinary ten week signature gathering campaign which relied on three hundred volunteers to obtain the key margin to place the measure on the ballot. The utility companies, desperate to avoid a vote on the bailout, went to court last month to ask that the counties be prohibited even from counting the signatures. (The court has not responded).

Approximately three hundred volunteers — part of the Ralph Nader sponsored “Oaks Project”–gathered over 85,000 of the 713,000 signatures collected. They will form the core of the grassroots campaign for the measure.

Predict Costly Campaign

As the first of $28 billion in taxes to bail out the utility industry appear on electricity bills from the state’s three private utility companies — along with a transparently phony rate reduction — consumer advocates announced a signature drive to stop the bailout tax and cut utility rates by 20%.

The target of the initiative is a $28 billion utility tax, unanimously approved by the state legislature in 1996, to bail utility companies out of their bad investments — principally white elephant nuclear power plants — so that the utility companies can compete with non-nuclear utility companies in a “deregulated” market.

The bailout tax appears on the March bills (as a “CTC” charge) — along with a phony rate “reduction” intended to fool the public into believing that they are saving money when in fact they are being gouged.

“The utility tax is the greatest heist in California history. Unless we stop it, it will force every California family to pay an extra $2,000 in taxes over the next ten years.”

Utility Bailout Bilks Public

Ramrodded through the Legislature by the powerful utility company lobby, the bailout legislation was promoted by the utility companies in order to free them from state regulation and allow them to compete against other energy companies who have been making separate deals with big companies that require lots of power. However, because the California utilities had previously invested in extraordinarily expensive nuclear power plants, they could not compete in an unregulated marketplace against energy companies without costly nuclear investments. So, in 1996, a compliant Legislature:

o froze electric utility rates at Jan. 1 1996 levels — which are approximately 50% higher in California than the national average — through January, 2001, depriving California rate payers of the benefits of competition that could drive down electric rates by an estimated 15% each year for the next four years.

o enacted a $28 billion utility tax, paid by residential and small business customers over ten years, to bail out the utilities by covering the estimated costs of their uneconomic power plants, including “white elephant” nuclear facilities. In effect, rate payers are forced to buy the power plants (for which they have already paid tens of billions of dollars in cost overruns).

o let the utilities keep the power plants and run them with the subsidy, thus in effect subsidizing nuclear power facilities relative to clean, non-dangerous alternative sources that would give us energy independence.

o tried to fool the public into believing the “deregulation” legislation will save them money, by ordering utility companies to issue a “10% rate reduction.” However, adding the ultimate insult to the injury, the utility companies do not pay for the reduction; instead, they float bonds for which consumers must repay an estimated $8.5 billion in principal and interest. For every $1 of rate reduction, consumers will pay nearly $3 in principal and interest over the course of 10 years.

Moreover, the Legislature placed grossly inadequate protections against the kind of consumer fraud, invasion of privacy and other abuses that accompanied the deregulation of telephone service.

Initiative Stops Bailout Tax, Offers Real 20% Reduction

The C.U.T. initiative:

Ensures that all residential consumers and small businesses receive at least a 20 percent reduction in their electric utility bills. If the Legislature had not frozen rates to bail out the electric utility companies, rates would have dropped by 15 percent as a result of market forces alone.

Saves consumers and small businesses from $28 billion in taxes designed to bail out the utility companies from their past investment mistakes and mismanagement. The initiative reverses the automatic $28 billion utility bailout tax. Forcing rate payers to bear the cost of these bad investments, in order to finance the utilities’ transition to a competitive marketplace, is inconsistent with a truly competitive market and unfairly shifts the burden of uneconomic investments from the utility shareholders to the rate payers.

The measure prevents the utilities from passing on to consumers the burden of paying for their past bad investments in nuclear power. As economists predicted, the construction of nuclear power plants resulted in outrageously high utility bills and the waste of billions of dollars that the utilities now want rate payers to pay in full so that they can lower their rates for big industrial clients. Californians overwhelmingly oppose being forced to bail out the utilities whose executives were bedazzled by nuclear power that they promised would be “too cheap to meter.” Further, the initiative would not allow the utilities to recover any costs of uneconomic power plants from any customer (large or small) unless they can demonstrate that failure to do so would deprive them of a fair rate of return. The initiative specifically provides that the utilities may recover costs associated with contracts with renewable and small energy sources, consistent with prior state and federal policy to encourage the development of energy independence from foreign oil through alternative energy sources.

Prohibits the use of taxes and surcharges that force rate payers to finance their own rate reduction. The initiative stops the phony, rate-payer financed rate reduction by prohibiting the utilities from charging their customers for reduced rates through added surcharges or “taxes” on residential and small commercial bills. The current scheme that allows the utilities to sell bonds to finance the legally required rate reduction forces consumers to repay, with interest, the reductions over ten years. The initiative would require the utilities to pay back consumers for any surcharges on their utility bills for bonds issued prior to passage of the initiative.

Ensures consumers have the information they need to obtain high quality and low cost electricity and to protect themselves from abusive marketing practices. Residential consumers and small businesses are being bombarded with marketing pitches from competing electricity suppliers, but are getting little objective information to help them make smart, economically and environmentally sound choices. The initiative would require all electric companies to include neutral, fact-based information about the electricity market and their consumer choices in their utility bills. The initiative also restricts the ability of electricity service providers to sell or otherwise provide information about consumers and their consumption habits to any third party, including direct marketers, without the written consent of the consumer.

Massive Grassroots Effort Underway

The measure is sponsored by “Californians against Utility Taxes,” the advocates — Nettie Hoge, Executive Director of The Utility Reform Network, Herb Gunther, Director of the Public Media Center, and Harvey Rosenfield, author of insurance reform Prop. 103. Harry Snyder, of Consumers Union (non-profit publisher of Consumer Reports magazine), has also announced his organization’s support.

Over 70,000 signatures a week must be collected if CUT is to meet the statutory deadline of April 17th.In addition to hiring professional signature gatherers, the campaign must mount a massive grassroots volunteer effort in order to make sure the measure gets on the November ballot. Also announced today:

  • The formation of a corps of over 1,000 volunteer signature gatherers.

  • A broad coalition of groups — across the ideological spectrum — will join the campaign.

  • A special Web Site: ( has been set up. Consumers can obtain detailed information and download copies of the initiative petition to circulate. The Web Site also contains the CUT “gouge-o-meter,” which lets consumers type in their utility bill and calculate how much is a rip-off.

  • A direct mail campaign will be mounted.

  • Members of the Association of Alternative Newsweeklies have decided to publish a copy of the petition in their newspapers, led by the Bay Guardian.

The consumer groups say they expect the utility industry to spend potentially tens of millions of dollars of rate payers money to fight the measure once it gets on the ballot — as the insurance industry did in 1988. Last December, utility companies began a $90 million propaganda campaign to convince the public that “deregulation” would save them money. The campaign — considered a bonanza for the advertising firms involved — has done little to educate Californians and is paid for by the rate payers.

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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