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The twin pillars of Gray Davis' energy policy have been
first, to keep electricity rates frozen regardless of the actual
price of electricity, and second, to prevent the state's
utilities from declaring bankruptcy as a direct result of his
first policy.
Last year, in the face of rapidly escalating prices for
electricity, the Davis administration forced the utilities to
purchase power at losses of 500 percent and more.
It only took a few months of this policy to plunge the
utilities to the brink of bankruptcy. By January their assets
and credit had been destroyed, and generators were no longer
willing to sell them power.
At this juncture, the utilities could have declared
bankruptcy, and the federal courts could then have stepped in to
reorganize their finances and restore them to financial
stability. Their assets – including billions of dollars they
had transferred to their parent companies - could have been put
back on the table and sorted out, their creditors satisfied,
their credit restored, and the lights would have stayed on.
But Gov. Davis rejected this path, in large part for fear
that a federal bankruptcy judge might have ordered rate
increases to reflect the actual cost of electricity. To Davis,
this was politically unthinkable.
And so, he chose a different path. To replace the ruined
credit of the utilities, he placed state taxpayers on the same
downward fiscal spiral. Since January, Gov. Davis has lost some
$7.8 billion in this manner. This hasn't protected ratepayers
from the high cost of power – it just shifts the cost from
their electricity bill (where they can see it) to their tax bill
(where they can't). The Governor's plan to recover these losses
is to raise electricity rates on consumers for years to come -
sometime after the 2002 election. Last week, he signed a bond
measure to cover his losses that, with interest, will add $2,000
to the average ratepayer's bill over the course of the bond.
Ironically, after spending $7.8 billion to prevent overt rate
hikes and utility bankruptcies, California now has suffered the
biggest rate hike and biggest utility bankruptcy in its history
anyway.
Pacific Gas and Electric announced its plan to reorganize
under bankruptcy law the day after Davis' statewide address on
energy, handing him a stinging rebuke of no confidence. This
began a frenzied scramble in the Governor's office to avoid
similar embarrassment with Southern California Edison. The
result is a memorandum of understanding that will restore SCE's
credit (something that federal bankruptcy courts do for free),
by draining ratepayers of yet billions of dollars more.
This agreement is now before the legislature, and SCE is
spending a reported $4 million in ads to pressure legislators to
hand them your ATM card.
Under the arrangement, ratepayers will pay 2.3 times the book
value for Edison's transmission lines. But having paid for those
lines, the ratepayers won't even end up owning shares in them;
the plan is for ratepayers to buy them and hand them over to the
state. The state will then hire SCE to do what SCE was doing
anyway: maintain and operate the same lines, all at ratepayer
expense, of course.
But that's just the beginning. SCE is guaranteed a total of
$3.5 billion -- or $833 per ratepayer -- something
euphemistically called "securitization" because the
real word for what is happening, "larceny," doesn't
read well in press releases.
Finally, SCE is guaranteed a profit of 11.6 percent of its
capital investments, all at ratepayer expense. (Ask your bank
how much it is willing to pay you on the money you invest with
it.)
So here's what your family ends up paying for: grossly
inflated prices for transmission lines that are then to be
turned over to the state; maintenance and operation of those
lines; $3.5 billion to bail out SCE's past mistakes (about $830
per ratepayer), an 11.6 percent guaranteed rate of return for
SCE's investments. And the sad thing is, it doesn't add an inch
to the transmission lines or a watt to the generating capacity
of the state.
For ratepayers, it's a deal from hell, or more precisely,
from the Governor's office, a nearby suburb.
Senator McClintock represents the 19th
State Senate district in the California Legislature. His website
address is www.sen.ca.gov/mcclintock.
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