California May Be Contagious

Sept. 18, 2001
Bottom Line Energy Issues - September 2001

Efforts to pass state legislation to bail out Southern California Edison, the other investor owned utility facing bankruptcy with $3.9 billion debt, were delayed when the bill that bounced from the Senate passed the Assembly with modifications that enraged opposition in the Senate. SCE set Sept.14 as a working deadline to get legislative relief to keep the company solvent. Gov. Gray Davis reportedly mounted a full court press to gain passage but the delay indicated his efforts needed greater Senate support to prevent another blow to the state's energy deregulation woes. Also at stake was the ability of the state to sell bonds worth more than $12 billion to help fund the outstanding debt for long term electric purchases the state incurred to help bail out SCE and PG&E, already in Chapter 11 bankruptcy, so that customers of these companies would not face the full bill. The bond sale has been delayed several months and still faces uncertainty on Wall Street. Consumer groups oppose the Davis legislative plan as "just an Edison bailout."

The state moved much closer to organizing a government-run monopoly for gas and electricity. It inaugurated the hastily conceived Consumer Power and Conservation Financing Authority, with immediate plans to create a state-owned reserve of 3,000 megawatts of power supply by next summer. State-owned resources can be used to reduce the threat of blackouts and drive down wholesale prices by reducing private generators' hold on the market, according to the Governor. State Treasurer, Phil Angelides, board member and advocate, said the Authority should "be strong enough, mobile enough, and entrepreneurial enough that it will be a competitor to the private sector." The new agency's board chair and interim CEO, S. David Freeman said, "The legislature has created a consumer protection agency. Our job, if I can borrow a phrase from the Boy Scouts, is to be prepared...[we] need to tame the runaway market that was gouging the heck out of all of us." Swift opposition was voiced by Jan Smutny-Jones, head of the Independent Energy Producers Association who said, "If the power authority is designed to complement and supplement what's going on in the private sector, fine. If they're trying to compete, ultimately the taxpayers will lose a lot of money. Sec. of State, Bill Jones, called it "the birth of another useless bureaucracy." The agency has borrowed $5 million from the state for startup fees and will finance its operations with up to $5 billion in revenue bonds.

The idea of state public power authorities may be catching on. In Indiana, state Sen. Craig Fry announced his plans to introduce legislation to create an 11-member Public Power and Finance Authority that would compete with investor-owned utilities to produce and sell electricity. He said, "In the wake of the Indiana Senate's failure to act on utility reforms, I have spent much of this summer contemplating what could be done to both protect residents and businesses of this state and ensure that we do not suffer power losses and rolling blackouts that have come to California. Based on these two needs, I believe that a public power authority is the best long term answer to our problems. It would provide additional competition that would help keep costs to consumers low and expand our capacity to ensure that we have sufficient energy reserves in the future." He admitted that his plan was, in part, a response to his general mistrust of big business and utilities in particular.

Meantime, the CA PUC floated steps to cede control for electricity price setting to the state Department of Water Resources to help assure that prices committed to by the state would be recovered to pay the $43 billion accounts payable. The DWR began shopping around for gas also, to help assure that consumers would not be unfairly billed for unjustified markups for electricity generated by gas. As part of its program the PUC would also suspend the program that allows customers to shop around among competing suppliers. The fear is that if larger users can cut deals at lower prices than the state paid, the folks left behind will be paying the difference. This outcome is, of course, opposed by The Utility Reform Group representing consumers. It says the state power buy was intended to benefit all consumers equally. State financial officials say these draconian steps are needed to assure Wall Street that CA customers will be required to help pay the bills, in addition to taxpayers.

Understandably, these plans met emotional opposition by the Foundation for Taxpayer and Consumer Rights. Harry Rosenfeld, founder, threatened to wage "the mother of all ballot wars" if the state power buyers are not subject to voter oversight. Doug Heller, spokesman for the Foundation said, "They're proposing to throw up their hands and say the power companies won, the utilities won, and the public has lost. Whatever revenue requirement DWR says it needs, it gets. That's just bad government."However, delays in selling the bonds can begin costing CA taxpayers even more after October, when interest rates on a bridge loan ramp up. These concerns prompted one PUC member, Richard Bilas, to observe, "We're in a position where we can really mess up the finances of this state, and I'm not going to put myself in a position to do that."

If consumer choice is eliminated, little would be left of the consumer side of California's venture into deregulation. State Sen. Debra Bowen said, "We sort of have this hybrid that in some ways is the worst of all worlds. She believes that reviving full-fledged competition may not be practical for years. Rick Couniham of Green Mountain Power said, "It looks to me like a state-run monopoly." Sec.of State, Bill Jones, who is seeking the Republican nomination for Governor bemoaned, "Little by little, the public trust is slipping away from our officials at the state level."

Jack Stewart, president of the CA Manufacturers and Technology Association said his members were shifting their attention to other energy options, such as allowing companies to generate their own power and sending jobs out of state to avoid the huge rate increases that threaten to put them out of business. Said Robert Batemen, who runs Roplast Industries, a plastic company, "It's not possible to go on like this."

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