-Caveat Lector-
Subject:
FTCR's Bailout Watch #17-18
Date:
Sat, 10 Mar 2001 22:17:40 -0600 (CST)
Bailout Watch -- Keeping an eye on the energy industry and the politicians
FTCR is publishing a daily newsletter on developments in the California
energy crisis.
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Bailout Watch #17 March 5, 2001
Governor Davis assures bankers, takes their money.
Governor Davis went to New York last week to calm nerves on Wall
Street. Apparently, it gives the financial guys real peace of mind to open
up their check books for the Governor. Among Governor Davis's events was a
breakfast fund-raiser at the headquarters of the banking and financial
services firm Citigroup, which brings us to a serious conflict of interest:
1) according to the OC Register, the chairman of the executive committee at
Citigroup Inc., Robert E. Rubin, was appointed in January to advise Davis
on various aspects of the crisis, including bond financing; 2) the two men
spent 25 hours in conversation about the energy crisis, according to the
New York Times; and 3) Citigroup and its investment banking unit, Salomon
Smith Barney, historically have done banking work for Edison International
and PG&E, including, to no one's surprise, bond underwriting.
"Generators are my favorite people,"
Governor Davis joked to Wall Street analysts according to an edited
transcript of a meeting with Wall Street Analysts on his East Coast swing.
"If you haven't invested in Dynegy, Alliance, Southern or Duke, you still
have time. I've told all my buddies here, I don't care how much you're
making, you don't make as much as these guys…" But isn't the joke really on
California? We'd like to know who exactly was in the room, and will request
that info, along with the unedited transcript.
Davis's (not so) tough talk.
Continuing on at his speech in New York, Governor Davis made his pitch
about the power companies that have throttled California: "I think it's
only fair that in what amounts to a work-out, the people who have done
extraordinarily well with our market participate in the solution. And I
think we can do that in an amicable, negotiated context. I don't have to
compel them, but can urge them to do it. We appreciate all those who have
contributed modestly to the solution." Come on! These companies have held
California under the threat of blackouts unless we make daily ransom
payments. How many billions of taxpayer dollars is the Governor willing to
throw at these "people who have done extraordinarily well," before he
realizes that amicable negotiations will not end the extortion? You don't
have to compel the generators to deal fairly, but, Governor, you should.
No beef with deregulation.
Later in his Wall Street speech, Governor Davis had this to say about
California's energy policy: "I'm leaving you with a market that is still
deregulated and will not collapse unto itself thereby precluding
deregulation from ever working in California. ...As for deregulation, I
have no beef for it or against it." Despite the fact that deregulation is
arguably the most egregious public policy failure in California history,
Governor Davis has no reservations about protecting this skewed system,
which benefits the energy industry and their investors at the direct
expense of California consumers and taxpayers.
=========================
FTCR is publishing a daily newsletter on developments in the California
energy crisis.
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Bailout Watch #18 March 6, 2001
Would you agree to pay 10 bucks for a gallon of milk until 2006?
That's roughly analogous to the blackmail-induced deal that Governor Davis
has struck with energy companies. The long-term contracts that the governor
announced Monday will force ratepayers to pay energy prices that are 263%
higher ($80 per megawatt-hour) than the prices considered reasonable just a
year ago. We are locked in to that price for five years and then we will
pay 203% more than 1999 prices for the five years thereafter. This is the
equivalent of forcing families to pay about $9.96 for a gallon of milk
(currently about $3.79/gallon) until 2006 and then $7.69/gallon through
2001. It would be scandalous to charge that much for milk, and it is a
scandal that we will be locked into these prices for electricity. Of course
the generators have demonstrated that they will milk us for all we're worth.
$3 billion down the drain.
According to the Associated Press, the state needed to call upon the budget
surplus for another $500 million this week to buy power formerly procured
for consumers by the utilities. The state has spent $3 billion dollars
purchasing the "net shortfall" of electricity from private energy
generators over the last 8 weeks. With that money, Governor Davis could
have taken and purchased, by eminent domain, every plant sold to the
private generators.
First they put you in a bad financial place, then they overcharge you for
being in a bad place.
That is how the energy generators and market traders justify the obscene
energy prices they charged to utility companies in the midst of
California's deregulation debacle. First, power companies forced the price
of electricity so high that the utility companies started to whine about
bankruptcy and demand a ratepayer bailout. Then they added an extra "risk
premium" to the energy price because the companies were allegedly on the
verge of bankruptcy. Can you say "inescapable downward spiral"? According
to an Enron spokeswomen (as quoted in the OC Register), "credit-worthy
status is one of the reasons the prices are so high. The price [the
utilities] pay is directly proportionate to the ability to pay off debt."
Does anyone really believe that adding a penalty charge to already
excessive prices would have somehow have the effect of encouraging the
utilities to pay up? Or were the generators just running up the eventual
bailout bill?
"Downward Spiral," Part II.
While all the generators insist that they had to charge the utilities a
"risk premium" after gouging them out of solvency, that does not explain
the indefensible prices that the generators have been charging the Cal.
Department of Water Resources, a highly credit-worthy entity. Why didn't
prices fall to reasonable levels after the state took over power
procurement from the utilities? Answer: Governor Davis never stood up to
the generators, demanding that they sell power at a reasonable price, or
else lose their plants.
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