Gene Coyle on electricity

[Michael Perelman <michael@xxxxxxxxxxxxxxxxx>]

Prop 9: The Last Chance to Save Utility Consumers

by Tim Bousquet

Gene Coyle, an energy economist who was working with
the consumer protection group Toward Utility Reform
Network (TURN), had long argued that utility
deregulation would result in higher utility rates, as
the utility companies  colluded and conspired to raise
the price of electricity.

TURN, however, did not oppose utility deregulation
when it was winding its way through the California
legislature, because the organization considered it a
"fait accompli"; instead the group attempted to
influence the legislation in order to provide some
small measure of consumer protection.

Coyle was so certain of the looming price increases
that he left TURN in disgust.

**
Besides deregulating the utility industry, AB 1890
provided for two new charges to show up on utility
bills.

The first is the Competition Transition Charge (CTC),
which reflects a bond issuance to Pacific Gas and
Electric, Southern California Edison, and San Diego
Gas and Electric for $28.5 billion. This money pays
off so-called "stranded costs" -- mainly bad
investments in nuclear plants at Diablo Canyon and San
Onofre. "The CTC charge amounts to about half the
average utility bill in California," comments
Alexander Cockburn.  To gauge the size of the CTC, the
American Local Power Project (ALPP) notes that the
bailout  "is nearly one-fourth the entire federal tax
burden of the Savings and Loan Industry bailout by
Congress ($120 billion)."

Citing the CTC, Wenonah Hauter, director of Public
Citizen?s Critical Mass Energy Project, told The
Nation that "what California has defined as
deregulation means that the big utilities will get the
public to pay for their nuclear plants, and then
establish a network of nonunion, unregulated
monopolies."

The second new charge on utility bills is the Trust
Transfer Amount (TTA), which consumers pay to retire
$5 billion worth of a second series of bonds known as
"California Infrastructure bonds." These bonds were
used to pay for a 10% rate reduction mandated by
AB1890, and the entire arrangement was accurately
characterized as a "unique financing mechanism" by
Coyle. "In effect the small customers are borrowing to
give themselves this rate cut, which is like borrowing
money to give yourself a raise," Coyle told the ALPP.
"What this amounts to is a new 2-4 cents/kwh hidden
tax that Californians will have to pay to private
utility owners."

In addition to the charges that show up on utility
bills, AB1890 also locked in special discount rates
for large industrial users of electricity. "These
discounts, the lowest rates on the system, allegedly
are granted in exchange for the host utility?s right
to interrupt service to lessen demand on the system,"
said Peter Asmus, a Sacramento-based energy writer.

JBS Energy Inc., an independent energy consulting
firm, concluded that the discounted rates amounted to
more than $210 million annually in subsidies to
industrial users. "The vast bulk of these costs will
fall on the backs of residential customers of Southern
California Edison and Pacific Gas & Electric," wrote
Asmus.

"Why would policy-makers skew a deregulation plan that
was supposed to lower rates into a corporate welfare
program for the state?s largest industries?" asked
Asmus rhetorically. Because deregulation, as expressed
in AB1890, was essentially "a political compromise
between the two primary special-interest groups that
dominate the California Legislature as well as the
proceedings at the PUC: large industrial consumers and
investor-owned electric utilities."

And those special interests dumped millions into the
campaign coffers of members of the legislature and the
Governor. Pete Wilson received more than $450,000 from
large industrial-utility customers in the two and a
half years before deregulation, and another $120,000
from the state?s three investor-owned utilities. Jim
Brulte, a Republican Assemblyman from Rancho Cucamonga
who, with Steve Peace, wrote the deregulation bill,
got more than $175,000 from large industrial users and
the utilities. Senate Pro Tem Bill Lockyer, a Democrat
from Hayward, landed more than $50,000 from the
utilities and $140,000 from industrial consumers. "In
all," said Asmus, "the oil and natural-gas industry
has given more than $360,000 in campaign contributions
to 10 key legislative policy-makers, including Wilson,
Brulte and Lockyer," in the two years leading up to
deregulation.

It "would be naive," comments Asmus, "to suggest that
these investments of political capital have not
influenced policy-makers engaged in a frenzied final
push to approve deregulation before the current
legislative session ends. The fact that those
constituencies that do not generate large amounts of
cash for candidates see little benefit in the
deregulation package, however, hardly seems to be a
coincidence."

**
In the wake of AB1890 being signed into law, consumer
protection groups did not focus on the economic issues
of deregulation--which are complicated, arcane, and as
we?ll see next week, a matter of faith--but rather on
the easily understood aspects of corporate subsidies
and bailouts funded by residential rate payers.

In the months following the passage of the
deregulation bill, TURN, admitting that it was
"rolled" by business interests, reconciled with Coyle
and asked him to come back as an unpaid consultant.
"He was right; we were absolutely wrong," Nettie Hoge,
TURN?s executive director, told Kathryn Kranhold of
the Wall Street Journal. The group, with Coyle as its
spokesperson, joined with Consumers Union and Ralph
Nader protege Harvey Rosenfield in an effort to stop
the issuance of bonds financing the nuclear plant
bailouts and "rate reduction" scheme.

TURN and Coyle at the time sought legislative relief,
then testified before the Public Utilities Commission,
and then considered a lawsuit to stop the sale of the
bonds.

All these efforts came to naught, however, and so the
activists instead turned to the voter initiative
process. Rosenfield, who was the author of the
successful insurance roll-back initiative of the
1980s, wrote another initiative aimed at derailing
deregulation; these efforts resulted in Proposition 9
on the November, 1998 ballot.

"If Proposition 9 passes," explained Cockburn in the
weeks leading up to the election, "all residential
consumers and small businesses will enjoy a guaranteed
20% reduction in their utility bills. The utility
giants will be prohibited from imposing surcharges
that make consumers finance their own rate
?reductions.? Proposition 9 also will block the
utilities from making their customers pay for the
company?s disastrous investments in nuclear power,
though it wisely would allow the power companies to
recoup investments in alternative and renewable
sources of energy."

In other words, if Proposition 9 passed AB 1890 would
be overturned almost completely, and utility
deregulation would not have led us to where we are
now.

Prop 9 faced an uphill battle from the beginning, and
the fight became only steeper as the election neared.
While the three consumer protection groups were able
to raise about a million dollars to circulate the
initiative petition and put the measure on the ballot,
they had no money at all to run a advertising campaign
in favor of the proposition. The three utilities, on
the other hand, dumped over $40 million into the "No
on Nine" campaign, money that was mostly spent on
prime time television ads.

The television ads were so ubiquitous that when
Rosenfield was handing out pro-Prop 9 fliers at a fair
in Fresno, a woman took one, read it, and said, "But
Harvey, the TV told me to vote no."

The utilities also sought--some would say
bought--allies where they could. "For environmental
cover," commented Cockburn, "the utilities have turned
to outfits such as the Natural Resources Defense
Council and the Environmental Defense Fund and the
Planning and Conservation League, one of California?s
largest environmental outfits. Over the past six
months, utilities have given this last group $
70,000."

Business groups, and even the state teachers union,
argued against Prop 9 on the dubious premise that
should the initiative pass the responsibility for $6
billion in bonds would fall on the tax payers. This
argument seems almost quaint from our current
perspective, where government officials in Sacramento
are contemplating a utility bailout costing tens of
billions of dollars.

Were the considerable opposition not enough, Coyle
suddenly had to remove himself from the campaign. "I
was involved -- I actually signed the rebuttal ballot
argument, along with David Brower and Ralph Nader," he
told the Examiner. "And I did one debate -- but my
wife got ill and suddenly I was out of it."

Moreover, every corporate-owned newspaper in the state
editorialized against Prop 9, while only a handful of
small circulation weeklies recommended a yes vote.

Besides the three consumer protection groups, the only
other supporters of Proposition 9 were the League of
Women Voters and the Sierra Club.

**
A significant argument in favor of Prop 9 might had
come from an unlikely source. In July of 1998 a
preliminary staff analysis from the California Energy
Commission showed that if the initiative passed
consumers would see rate reductions of 24% to 37%. But
the utility companies strongly criticized its
conclusions, reported Douglas Shuit in the Los Angeles
Times, and the full commission--all political
appointees of Pete Wilson-- ordered a second study to
"respond" to those concerns.

Fearing that the revised study would be sham meant
only to bolster the "No on Nine" campaign, Rosenfield
and Snyder wrote the Energy Commission a letter saying
that it "has no business participating in the
political campaign for or against Prop. 9. It has
neither the legal authority, nor the resources, nor
the expertise to weigh in on fiscal or political
matters."

When the study was completed in October 16, however,
it concluded that "ratepayers of Southern California
Edison, Pacific Gas & Electric and San Diego Gas &
Electric would have received reductions of 11% to 18%
over what they now pay," wrote Shuit, and that
"closing PG&E?s heavily subsidized Diablo Canyon
Nuclear Power Plant would not pose a significant loss
to the state?s electricity supply..."

But William Chamberlain, the attorney for the Energy
Commission, "advised the commission to hold the report
until after the election in part because of the
letter" from Rosenfield and Snyder. "We intended the
report as a balanced presentation of facts, but
because it might be interpreted as something else, I
felt the commission ran a risk if it put out anything
at all," Chamberlain later told Shuit. The Commission
then voted in a closed meeting to delay releasing the
study until after the election.

"Because it would have helped debunk claims by
Proposition 9?s opponents that the initiative would
lead to higher electric rates," commented Shuit,
"release of the study would have aided the measure?s
sponsors, whose arguments were overwhelmed by the more
than $40 million spent by the utility industry during
the campaign."

In the media blitz leading up to the election, Shuit
continued, the utility companies contended that "the
initiative would result in higher rates. The utility
companies also argued during the campaign that
provisions of the measure ending nuclear subsidies
would cripple the state?s power supply, causing
increased demand on remaining supplies that would push
electric rates higher." All of these claims were
disproved by the study.

The Energy Commission?s report was released on
November 17, two weeks after the election.

Proposition 9 failed by a vote of  73.5 percent
against and only 26.5 percent in favor.

Southern California Edison Co., via a company press
release, said that the vote underscores "California?s
thoughtful and efficient approach to making a smooth
transition to a fully competitive marketplace."

Rosenfield had differing opinions. ?The utilities
bought the Legislature to get the deal, they bought
the political establishment, and then they spent more
than $41 million to buy the election.?



--

Michael Perelman
Economics Department
California State University
michael@xxxxxxxxxxxxxxxxx
Chico, CA 95929
530-898-5321
fax 530-898-5901