San Francisco Bay Guardian - August 13, 1997



State legislature approves move to give “28.5 billion bailout to private utilities – at ratepayer expense.


By Savannah Blackwell


In a move that amounts to perhaps the biggest consumer rip-off in California history, the state legislature has approved a plan to force electricity consumers to pay more than “28 billion to bail out private utility companies’ bad investments, primarily in nuclear power plants.


On Thursday, Aug. 7, the state senate gave final approval to a bill authored by senator Steve Peace (D-El Cajon) authorizing the sale of up to “9 billion in state bonds to underwrite the bailout. The bonds will be paid for by residential and small-business customers over the next 10 years.


The remainder of the cost of the so-called stranded investments will be spread among all electric customers, large and small.


Senators John Burton (D-San Francisco) and Tom Hayden (D-Brentwood) were the only two representatives to vote

against what consumer groups are calling the worst example of over-the-top corporate welfare since the savings-and-loan debacle. The state assembly passed the bill Monday, Aug. 4, with both of San Francisco’s representatives, Carole Migden and Kevin Shelley, voting in favor.


San Francisco, the only city in California with a federal mandate to provide public power, was entirely missing in action on the bill. The city’s lobbyist ignored the bill; P.J. Johnston, deputy press secretary to Mayor Willie Brown, told the Bay Guardian that the mayor “hasn’t weighed in” on it. In fact, not a single person at City Hall has come out in opposition to the bill.


“This is a massive exercise in corporate welfare … so the big utilities can be subsidized and thus avoid true competition,” Harvey Rosenfield, author of the 1988 voter-approved insurance reform initiative Proposition 103, told the Bay Guardian. “It’s a bonanza to utilities and a screw job to the public.” Rosenfield and Ralph Nader are leading a movement called Californians against Utility Taxes (CUT).


The rate-cut lie


The bailout is a key part of the state’s move to deregulate the electric utility industry. The terms of deregulation have been immensely favorable to California’s three biggest private electric companies, Pacific Gas and Electric Co., San Diego Gas and Electric, and Southern California Edison.


The three utilities argued that they would not be able to compete in a free market unless consumers paid off their joint “28.5 billion in lost investments, largely in nuclear power plants, because otherwise their rates would have to rise to pay off that debt. Lawmakers in charge of the deregulation process – senators Peace and Jim Brulte (R-Cucamonga) – agreed to the utilities’ request.


Under Peace’s bill, the utilities will receive the bond proceeds immediately, in exchange for a promised four-year 10 percent rate reduction for residential and small-business customers. The bonds, however, will take 10 years to pay off. Harry Snyder of the Consumers Union, which opposes the bill, told the Bay Guardian the 10 percent cut is misleading, because in the end customers will pay “9 in principal and interest for every “1 in savings.


“Basically, PG&E is adding 30 percent to your energy bill starting January 1 to pay off Diablo Canyon and other bad management decisions,” Herb Gunther, director of the Public Media Center, which is handling CUT’s campaign, told the Bay Guardian. “And all the time they’re making you think you’re getting a 10 percent reduction.”


Analysts at the Public Utilities Commission have said the actual benefit of the 10 percent rate reduction is between 1.5 and 2.5 percent.


The initial deregulation bill, passed in late 1996, was supposed to open the electric industry to competition. But consumer groups and environmental groups are saying it will not create a true free market because of the subsidies provided to the major utilities.


“This isn’t deregulation. It’s deregulation for the big utilities. For the rest of us it’s excessive regulation,” Rosenfield told the Bay Guardian. “This bailout forces ratepayers to fund the use of dirty, unreliable, anti-environmental energy.”


A wide array of consumer, environmental, and taxpayer groups, both conservative and liberal, have emerged to oppose the legislation. Among them are the American Association of Retired Persons; the United States Public Interest Research Group (USPIRG) and its local affiliate, CalPIRG; the Utility Consumer Action Network; the Environmental Defense Fund; the Heritage Foundation; the Consumers Union; the Geothermal Research Association; Friends of the Earth; and Public Citizen.


CUT points out that consumers should not be misled by the “rate freeze” implemented by the initial deregulation bill. California rates may have been frozen, but those rates are roughly 50 percent higher than those in other states, Nader and Rosenfield say.


‘An absolute fraud’


The deregulation bill is also flawed, consumer activists say, because it makes it difficult for individual consumers to change power providers. For instance, new power brokers will require that customers have meters that reveal how much energy they use by the hour and are hooked up to modems. The expense and hassle will likely block individuals from changing companies, according to utility economist Eugene Coyle.


“The new vendors will decide who to approach about offering their electricity,” Coyle told the Bay Guardian. “This thing is not going to work. It’s a joke. It’s an absolute fraud on the California public.”


Nader and Rosenfield say consumers will be socked with a new utility tax under the guise of “competitive transition costs.”

To add insult to injury, the California Public Utilities Commission (CPUC) has just announced it will be spending nearly “90 million on a consumer education plan to teach customers about deregulation. Rosenfield and crew are calling that a massive public relations campaign, funded by consumers, to sell them deregulation.


Gunther says that money should be spent helping communities organize into electricity-buying cooperatives that could compete with the big private utilities in the marketplace. “That money would be better spent on aggregating customers,” he told the Bay Guardian.


But the utilities have driven the process from the start. In the text of an advertisement that ran in the New York Times July 22, 1997, Gunther points out that, from July 1995 to July 1996, “2 million in contributions from utilities went to the coffers of key legislators involved in deregulation.


CUT points out that the legislature has passed these bonds without approval by voters – an apparent violation of Proposition 13. That point will provide grounds for a taxpayers’ suit, Gunther told the Bay Guardian.


State senator Quentin Kopp, who likes to be known as a fiscal watchdog, voted for the bonds.


“At one time public policy thought nuclear energy was a good thing. Then public policy changed,” Kopp told the Bay Guardian. “The utilities’ investment was a reflection of public policy.”


Assemblymembers Carole Migden (D-S.F.) and Kevin Shelley (D-S.F.) told the Bay Guardian that the ratepayers would have had to pay off the utilities’ stranded investments regardless of this bill. “I believe this measure serves the best interest of consumers,” Migden told the Bay Guardian.


Shelley said that by the time he got to Sacramento in January 1997, deregulation was a done deal that he could not stop. (Shelley and Migden were not alone in their support: the bill passed the assembly Aug. 4 by 72 to 5).


“Those of who were new, there was some frustration that we were stuck with [the initial deregulation bill passed in 1996],” Shelley told the Bay Guardian. “Where were the consumers’ groups back then?”


“Nobody talked to anyone when the bill first went through,” Burton told the Bay Guardian. “When Harry and Nader came out against the bill and explained that it seemed like a bailout, it called attention to it. Consumers shouldn’t be paying a “28.5 billion bailout. [Consumer groups] admitted that somehow it got by them.”


TURN (The Utility Reform Network) executive director Nettie Hoge told the Bay Guardian she deeply regretted that TURN had been neutral on the bill last year. She hadn’t realized, she said, that it would be such a giveaway to the state’s three big private utilities.


“We never thought anyone would take this obscene overreaching by the utility companies and the oil companies seriously,” Snyder told the Bay Guardian. “[Deregulation] was done quickly, with little review. And it doesn’t mean we can’t come back and clean this thing up.”


Among the plans of CUT and the consumers’ groups: filing a taxpayers’ lawsuit, filing an initiative to throw out deregulation, and creating an elected citizens utility board to replace the current CPUC commission.


“We had no realistic intention of stopping the bill at this phase,” Gunther told the Bay Guardian. “But once the public takes a good smell, they won’t stand for it.” ■



P.S. The Chronicle and the Examiner have essentially blacked out the story of how deregulation will screw California electricity consumers. The Chron ran a few paragraphs from the Associated Press July 24 announcing Ralph Nader’s campaign against deregulation; the Ex didn’t even do that. The San Jose Mercury News, on the other hand, has covered the debacle extensively; see “Power Play: Victory for Special Interests; Public May Gain Little,” 6/8/97. For the lowdown on the utilities’ influence on the deregulation process and how environmental groups were hoodwinked into signing on, see “Congress Looks West for Lesson in Utility Deregulation,” in the Congressional Quarterly, 2/15/97.


To get involved in the opposition to the bailout, write CUT, 1750 Ocean Park Blvd. #200, Santa Monica, CA 90405.


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