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

Bailout Watch #7 - Feb 13, 2001

Bluff Called.

Monday, a federal court in Los Angeles rejected Edison's request that it be allowed to immediately increase utility bills to the extortionary spot "market" price under full deregulation. In its lawsuit, Edison claims that the rate freeze it wrote into California's 1996 deregulation law is invalid. ("Invalid" only after Edison used the freeze -- pegged at 50% above 1996 market prices -- to rip $10 billion or so out of ratepayers' pockets between 1998 and last summer). Utilities had used the threat of the lawsuit in their efforts to extort a ratepayer bailout from Sacramento. Prospects for that are virtually non-existent now due to ratepayer ire and in light of the revelations that the utilities' parent companies systematically plundered the utilities. So the utilities -- and those to whom they owe money -- are running out of bluff opportunities, and are now falling victim to the "Cry Wolf" syndrome when it comes to bankruptcy, threats of which we have been hearing on a daily basis for over two months. The latest scenario: creditors file a bankruptcy petition, and the utilities use that to terrify state officials into a bailout immediately thereafter.

Hold everything.

Having looted their utility company subsidiaries of approximately $20 billion, the high-rolling parent companies and their fat cat CEOs don't want to help the utilities bail themselves out of the deregulation disaster they created. But the "holding company defense" asserted by the utilities has no legal basis: under a 1988 PUC decision authorizing the management of the utilities to create parent companies, "[t]he capital requirements of the utility…necessary to meet its obligation to serve," are the holding companies' "first priority." Indeed, at the time, Edison claimed that establishing a holding company would be advantageous to ratepayers because it "minimizes the possibility of inadvertent subsidies between regulated and unregulated businesses" (PUC Dec. 88-01-063, p. 6)

Whoops, they did it again.

Meanwhile, Edison International CEO John Bryson told an Assembly investigative committee last week that the utility had overpaid its tax bill to the parent company by over $1 billion. "Wouldn't be prudent…" "For us to take money-earning assets and liquidate them and inject them into the utility is just not prudent," said the CFO of Edison to the OC Register, as if the utility was some distant relative that they want nothing to do with -- now. So the utilities are lobbying the politicians to force ratepayers to "inject" their own money through charges hidden on utility bills for a decade or more.