BAILOUT WATCH: Keeping an eye on the energy industry and the politicians

As Ye Sow, So Shall Ye Reap. P.G.&E. wrote the 1996 deregulation law, reaped its financial rewards for three and one half years, and now it and its shareholders are bearing the consequences of deregulation

PG&E didn’t have to declare bankruptcy. Its parent company, created to take advantage of deregulation, has over $30 billion in assets, a huge portion of which it siphoned out of the utility subsidiary over the last few years. Indeed, the company gave raises and bonuses to over 6,000 employees just hours before filing for bankruptcy. It could have bailed itself out, but chose not to.

So why did they do it? With $2.5 billion cash on hand and Governor Davis’s multi billion dollar bailout promise issued the previous night, what calculation led PG&E to give up at this point? Bankruptcy was a political choice, not a financial one. PG&E realized that the Governor’s bailout had little chance of getting through the Legislature, and, even if it did, it had no chance of getting past the voters next year. We have been very clear that we would put an initiative on the ballot to reverse any such bailout.

Watch out for a panic-deal between Davis and Edison. Will Gov. Davis do anything, offer anything, to prevent Southern California Edison from following PG&E into bankruptcy? Doubtless, CEO Bryson will demand a more expansive bailout from Governor Davis, who already promised the utilities an extraordinary giveaway in his address to the state. In the meantime, Edison lawyers and financial analysts will watch the PG&E proceedings — if PG&E’s parent company is protected in bankruptcy court, Edison will surely follow. Will Governor Davis try to coax them out of it by sweetening the bailout pot? More important: will lawmakers, who got a pass from PG&E when it went bankrupt, approve a Davis deal to rescue Edison?

Wall Street gets the truth after the TV speech. After his five minute live TV speech, Davis zipped off to yet another fundraiser. Wall Street got a nearly two hour confidential presentation from the Gov’s staff and the posse of consultants he has hired at taxpayers’ expense when the rest of us were sent back to our regularly scheduled program. They were told the whole truth: that the Gov. wants to make Wall Street happy by bailing out the utilities. That he wants to make sure all the energy companies are paid in full. That he is not likely to do anything that would upset Wall Street or the energy industry, such as sign a windfall profit tax on the thieves that are gouging us, much less seize their plants, as we have suggested.

Electile dysfunction. After months of promising to protect Main Street against the side effects of deregulation’s collapse, the Governor sided with Wall Street. But the PG&E bankruptcy has unquestionably eviscerated Davis’s credibility on the "Street" (another reason why he’ll try to redeem himself with an Edison give-away). The Gov would have been better off politically if he had stuck with the voters. Instead, he’s alienated everyone. There’s still time to reverse that error — before rates go up.

It’s the generators, stupid. After four months of the Governor, lawmakers and Wall Street West (the new corps of official and unofficial governmental advisors) warning each other about the dangers of utility bankruptcy, here we are. Throughout the California energy crisis, decision after decision made in Sacramento was preceded by the question: does this help us avoid bankruptcy? As though the state’s very destiny was inexorably linked to that of PG&E Corp. and Edison Int’l. (Indeed, Governor Davis insisted, "Our fate is tied to their fate.") Now, as Sen. President John Burton and State Treasurer Phil Angelides have suggested, it’s time to stop worrying about rescuing the utilities and start striking back against the profiteering energy companies.

Click Here to read an analysis and commentary on the PG&E bankruptcy, by Harvey Rosenfield.

Judgment Day
581 Days Until November 5, 2002