BAILOUT WATCH: Keeping an eye on the energy industry and the politicians
Bailout Watch #3 - Feb 07, 2001
$800 million of taxpayer money down the drain. More to come.
Last month, when the utilities' demand for a bailout wasn't going anywhere, the utilities decided to enlist the independent power generators in their cause. How? They stopped paying their power bills on Tuesday, January 16. Rolling blackouts ensued. By Thursday evening, Governor Davis had declared a state of emergency and the legislature appropriated $450 million, giving the Governor authority to spend a total of $850 million to buy electricity at the extortionary spot market price charged by the generators. The rolling blackouts ended the next day. Now, the Governor says he'll need another $500 million by mid-February. Think of how many schools could be built, teachers hired, books bought for that money.
What's wrong with this picture?
We call it "blackout blackmail"; and, as any Sopranos fan will tell you, once you start paying ransom to crooks, they never let you go. In his state of the state speech, the Governor seemed to understand that we have to get tough with the power generators. A windfall profits tax would be a good start. If that doesn't get their attention, use eminent domain to seize a few of the power plants that are mysteriously "offline for repairs," causing shortages and skyrocketing prices. The state could own two of the plants for the $850 million we have handed over to the energy profiteers.
Wall Street West.
Wall Street firms have benefited enormously from deregulation through their trading of power contracts and their financial relationships with utilities and power companies. They stand to gain hundreds of millions of dollars more in underwriting fees through the sale of $10 billion worth of power bonds authorized by the Legislature last week. So it's no wonder the Wall Street people want to make ratepayers bail out the utilities from the deregulation debacle. Their greed is matched only by their arrogant disdain for the democratic process. In late December, Standard and Poor's issued an ultimatum: bail out the utilities within 48 hours. That didn't work, but with Sacramento teeming with Wall Street suits advising the Governor and Speaker, they're getting closer to their goal. Yesterday, Standard & Poor's announced it is unhappy that state officials haven't yet bailed out the utilities. Previously, the company suggested that it might lower the State of California's credit rating. We think the Attorney General should investigate the rating agencies' relationships with the energy and utility companies.
"DEREG: Where Are They Now?" An Occasional Series.
As the deregulation disaster unfolds, we'll pause to look back on those who sponsored and vigorously defended it. Today: "Concerned Shareholders of California." An Edison lobby group, it opposed Proposition 9, the 1998 ballot initiative that would have reduced electricity rates by over 20% by reversing the first utility company bailout of "stranded assets." CSC sent mailings to Edison shareholders in September, 1998, thanking them for helping to pass AB 1890, the deregulation law. William Hauck, Chairman of the organization, wrote: "we helped demonstrate that it is possible to transition to a competitive electricity market without negatively impacting the interests of utility shareholders." Whoops, William! Guess that was a little premature! He also wrote: "Proposition 9 dismantles the competitive electricity market and customer choice, and will actually result in higher electric rates!" Hauck did not return a call from FTCR.