-Caveat Lector-
Subject:
S&L Scandal Then, Utilities Bailout Now
Date:
Fri, 26 Jan 2001 22:22:50 EST
From:
[EMAIL PROTECTED]
To:
[EMAIL PROTECTED]
The network news is finally starting to shine the spotlight brightly on
Bush buddy and energy deregulation mastermind Ken Lay of Enron, publicly
pointing out that last year --just a few months before the so-called "energy
crisis"-- HIS multi-billion-dollar corporation (which sells the natural gas
that mostly fuels electrical power plants) reported a 500% profit -- which is
no longer that unusual, thanks to "deregulation."
Calif. Pols Avoiding 'Bailout' Term
By JOSEPH B. VERRENGIA
.c The Associated Press
SACRAMENTO, Calif. (AP) - No one trying to solve California's power crisis
wants to utter the b-word to describe the multibillion-dollar plan that would
keep the lights on while rescuing the state's two largest utilities.
``It's not a bailout,'' Gov. Gray Davis hastened to say after the proposal
emerged this week.
Assembly Speaker Robert Hertzberg said: ``It's not just a quick fix, a
Band-Aid. It's not a gift.''
Though the plan and its costs are still evolving, consumer advocates and
economists aren't so shy about calling it a bailout. They say utility
customers will bear the cost through rate hikes that will be in effect for a
decade.
``The utilities get bailed out and the consumers pay and pay,'' said Jamie
Briesemeister, senior policy analyst with Consumers Union. ``If this proposal
gets enacted, deregulation will go down as the biggest consumer rip-off in
California history.''
Whatever the terminology, the relief plan being forged for Southern
California Edison and Pacific Gas & Electric - who say that together they are
more than $12 billion in debt - would rank among the nation's biggest.
The deal would be dwarfed by the federal bailout of the savings and loan
industry, where cost estimates soared as high as $481 billion. But it would
be much bigger than the 1995 bailout of Orange County, which rolled up $819
million in debts, and the 1979 Chrysler bailout, even when inflation is
factored in.
Congress authorized $1.5 billion for the moribund automaker while it
reorganized under Lee Iaccoca. Chrysler used only $1.2 billion of the money.
California has been under a Stage 3 alert for nearly two weeks, meaning power
reserves are practically exhausted. Thousands of homes and businesses have
been hit by rolling blackouts in a crisis blamed in part on California's
deregulation of its electric industry.
Under the deregulation law, the utilities had to sell off their power plants
and buy electricity on the open market. But the two biggest utilities have
been sliding toward ruin because wholesale prices are soaring and the
companies are not allowed to pass the full cost on to their customers.
``The ratepayers' anger is understandable because that's the entity to which
they pay their bills,'' said Catherine Wolfram, a University of California
energy economist. ``But the utilities faced real regulatory hurdles. And the
power generators have been making out like bandits.''
Because the two utilities' credit is practically worthless, the state is
spending at least $400 million to buy power on their behalf on the expensive
spot market. At the same times, state officials are negotiating long-term
power contracts with suppliers of up to 10 years.
California lawmakers are also trying to put together a rescue plan under
which the state would issue bonds to cover SoCal Edison and PG&E's debts.
Millions of the utilities' customers would pay back the bonds over several
years through an extension of recently approved rate increases. The exact
amount of the deal is uncertain.
As part of the deal, the state would get long-term options that would let it
buy utility stock at a low price. If stock prices rise, the state could sell
the stock and use any profits to pay off the bonds.
Investment analysts offered cautious praise for the rescue plan, which stops
far short of another option that has been on the table: a huge state takeover
of utilities' hydroelectric plants and other facilities.
``Bailout implies incompetence on the part of companies who don't deserve
help,'' said Susan Abbott, managing director of the public utilities group at
Moody's Investor Service. But ``the way the market was structured didn't
allow the companies to protect themselves from the volatility of electricity
pricing. We believe this is a step in the right direction, although a lot
more has to be done.''
Others weren't so generous.
``Any of these proposals has an element of bailout,'' said Richard Gilbert,
another economist at the University of California at Berkeley. ``They are
subsidizing companies that are running at a deficit.''
Gilbert said any state-sponsored solution needs to raise electricity rates to
a level that encourages conservation and allows utilities to buy power at
new, higher rates. Otherwise, ``they are trying to solve the problem by going
around it,'' he said.
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