Wall Street: Blackouts Were Intended to Pressure California Legislature for $Billion Bailout

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In a memo sent to its clients, a Wall Street-based global investment banking firm has confirmed suspicions that last week’s blackouts were intended to pressure state officials to order a public bailout of the utility companies.

[View the Credit Suisse Memo]

Referring to the rolling blackouts that shut down portions of the state last Wednesday and Thursday, the memo by Credit Suisse First Boston concludes that the blackouts were likely “intended to soften up the Legislature and the voters to the need for rate increases.” A copy of the memo is attached. The Los Angeles Times today reported that the firm has been advising Assembly Speaker Robert Hertzberg on the energy crisis.

Consumer advocates said that the memo confirms their analysis that supply shortages were not responsible for the blackouts: “We didn’t have blackouts until the utility companies, unable to win a $10 billion ratepayer bailout by threatening bankruptcy, decided to stop paying their power bills last Tuesday. The next day, the blackouts began, and the day after that, the Legislature approved the Governor’s emergency request for an additional $400 million for the state to buy electricity. Then the blackouts stopped.”

“The memo confirms the suspicion that the blackouts were nothing more than blackmail by the energy industry which brought California to its knees so that state officials would panic and open up the public treasury to these thieves,” said Harvey Rosenfield, FTCR President. “Unfortunately, the scheme worked. Gov. Davis declared a state of emergency and within twenty-four hours, the Legislature by near-unanimous vote approved state purchases of electricity, totaling $800 million, with no strings attached. The energy companies got the money they were demanding — not from the utilities, but from taxpayers.”

A review of ISO notices on its web site indicates that the rolling blackouts were confined to the two-day period last week and that there have been no rolling blackouts since.

Advocates See Legislative Bailout, Rate Increases

Consumer advocates said they believed legislators were working with Governor Davis to approve a $10 billion utility bailout which would be concealed within utility bills for five to ten years, probably accompanied by some “window dressing” designed to appear as if ratepayers are getting something in return for the bailout.

“There must be no residential/small business ratepayer bailout of the utilities’ deregulation debts, either through lump sum payments or through hidden charges placed in rates/long term contracts to be paid over many years. The utilities should sell their own non-essential assets and cut costs to bail themselves out. If taxpayer or ratepayer money is needed to keep the utilities afloat, in effect, an involuntary investment, then we should receive assets or shares in the companies equal to what the market would demand for such a loan.”

Consumer groups offered an alternative proposal:

o Utilities use cash on hand, or sell non-essential assets purchased with ratepayer money during preceding three years, to pay their bills to power suppliers.

o Utilities sell their in-house power — 60% of state’s total consumption — to residential and small business ratepayers at their cost, plus regulated profit (as they did before deregulation). Reduces by 75% need for state to buy power. Large energy users negotiate their own deals, or reimburse state for purchases.

o Immediate establishment of public power agency to effectuate this plan and move forward in future: seize assets/eminent domain; forecasting demand and supply; develop conservation plan; plan use of renewable technologies, retrofit existing plants or construction of new plants. Other relevant state agencies consolidated into power agency; DWR acts during transition.

o Creation of Consumer Utility Board watchdog to represent small ratepayers’ interest before PUC, FERC, courts, legislature.


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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