California:
Multi-billion Dollar Bailout of Electric Utilities

Nov 5, 2001

In California, the state government arranged a huge bailout of Southern California Edison (SCE) that claimed to be on the verge of going bankrupt as a result of the entire deregulation crisis over the last year. This bailout was not voted on by the state legislation. Neither were its details debated publicly. On the contrary, the bailout was secretly negotiated by the state “Public Utility Commission.” The PUC signed off on the deal on October 4. Three days afterwards, a federal judge approved the bailout without even hearing arguments against it.

Of course, the few details that have come out show why the deal was kept such a secret. Under this agreement, SCE’s residential and small business customers will foot the bill for the debt that SCE claims to have accumulated during the electricity crisis. Consumer advocates estimate that this will add an average of $750 per year onto consumers’ bills for the next four years.

Of course, the whole idea that SCE is going broke and needed a huge bailout is bogus. In the last financial quarter that ended in September, SCE reported an increase of profits of 275% over the year before. At the same time, it was accumulating cash at record rates. As of last July, it had 1.7 billion dollars in cash. At the end of September, this pile had grown to nearly 2.5 billion dollars. SCE projects that its cash reserves will grow to 3.8 billion dollars by next February.

Nonetheless, SCE is to be “bailed out” and this “bail-out” will then serve as the pattern for the other two big privately held electric utility companies in the state, Pacific Gas and Electric (PG&E) and San Diego Gas and Electric (SGD&E).

This is only the latest in a series of schemes with which the utilities here grabbed money right out of people’s pockets.

In the first four years of “deregulation,” the utility companies collected an extra 20 billion dollars beyond the basic rates they charged–so-called “stranded costs.” Instead of applying this money to their growing “debt,” the utilities handed it over in dividends to stockholders or used it to leverage investments in lucrative, unregulated markets around the country.

Then last year, after contriving a so-called “energy shortage,” complete with blackouts, the power companies boosted rates to utilities. The electric utility companies in turn claimed that they were being forced to sell electricity at a loss. (Never mind that much of the money that they owed was to themselves, since they retained most of their most profitable electric generating capacity.) This turned into demands for big rate increases.

In January, the state government began to buy up electricity at the wholesale level, which the electric utilities then resold to consumers at a profit! The high wholesale prices were absorbed by state taxpayers. Second, the state regulatory commission boosted electric rates by up to 50% in two steps. Third, when the wholesale price of electricity was at its highest, the state government went ahead and signed long-term contracts with power companies worth an estimated 43 billion dollars.

Not only are taxpayers and consumers stuck with the responsibility of paying off the debts of the electric utility companies, but the 13 billion dollars in debt that the state has built up by paying for electricity on the wholesale level, as well as the long-term contracts for electricity that the state is now committed to for up to 20 years.

Money which supposedly was slated to pay for such social services as education or health services, now is slated to go into the pockets of the big state utility companies, power companies, electricity middlemen, and the big financial interests.

This is what utility deregulation has wrought in California–and what it will do elsewhere: a bonanza for stockholders, executives and “entrepreneurs,” paid for by the children of the state.