BAILOUT WATCH: Keeping an eye on the energy industry and the politicians
Bailout Watch #2 - Feb 06, 2001
Utilities seeking bailout scapegoat PUC.
The utilities' PR apparatus is gearing up to make the case for a $10 billion ratepayer bailout by scapegoating the PUC for the deregulation disaster. There is word that the Assembly will convene "oversight" hearings to focus on the PUC's role. What about an oversight hearing on the role of the utilities in deregulation? Or one on whether the electricity blackouts were legitimate? How about a hearing on the conflicts of interest that are raised when Wall Street firms whose clients are energy and utility companies are advising the Assembly on whether the utilities need a bailout? Featured in the utilities' campaign is a 17 page report on PUC President Loretta Lynch published by a Sacto lobbying firm, entitled "The Corruption of Power." It assails Lynch for offending the utility companies and Wall Street. The report's author, Sal Russo, told FTCR that no one paid him to do the report.
Lawsuit excuse for bailout. Speaking of scapegoats, we are concerned that the Governor will use the threat of the lawsuits filed by PG&E and Edison in federal court to justify a bailout of the utility companies. The lawsuits contend that the AB 1890 rate freeze is void under federal law. Having collected $20 billion from ratepayers under the freeze they wrote into law, the utilities want to eliminate the freeze now that they are experiencing losses instead of gains. Their legal argument is ridiculous. In any case, a final appellate decision on this matter is years away. But the Governor is said to be ready to "settle" the lawsuits in exchange for something less then the full $12 billion the utilities falsely claim they are out of pocket. (The true figure is less than half that amount).
Transmission system in exchange for a bailout? Our position is this: the utilities neither require, nor do they deserve, a bailout by ratepayers. Last week's audits confirm our view that they can bail themselves out. Suggestions that a bailout be dressed up with some kind of modest property exchange aren't going to fool the voters. Sen. Pres. Burton has proposed a swap of the transmission system, which would give California an opportunity to counter-gouge the thieves -- the energy companies now selling us power at extortionary prices. (They can't do much with their electrons without a transmission system). To be sure, the state could, if it wanted to, extract a great deal from the "broke" utilities -- beggars can't be choosers. Wall Street won't invest in the utilities, but if it did now, it would demand a very high interest rate. So the state could offer 50% of the $3.8 billion estimated book value and get a major piece of a "public power" system at a good price. But we think any bailout is unwise and unnecessary. It will be interesting to hear what the utilities say.