Re: Bankruptcy

[Eugene Coyle <eugenecoyle@xxxxxxx>]

This is the sort of simplistic answer that serves conservatives well but
of course it has little to do with what happened.  What happened was that
the utilties had the legislature make the rate payers pay not "a sufficient
amount for electricity to allow the electric companies to realize a reasonable
rate of return" but a price very much higher.  That higher price generated
several billion dollars over and above the wholesale price of electricity.
   PG&E put these billions  into an unregulated subsidiary which itself
just went bankrupt, unrelated to California law or markets.  The president
of the utility said at the time of the legislation that the company would
take the risk -- which he no doubt took to be very small.  

    Essentially PG^E bet the company on the belief that the over collection
would continue long enough to produce a huge gain.  It didn't quite.  The
combination of a poor hydro year and the cooperation if not the collusion
of the generators to fix prices came too early for PG&E which by law
would have been allowed to pass through any of the costs in just a few more
months.

    So, David Shamano ignores the actual history and separately ignores the
price fixing -- which of course can't happen in his world -- to reach the
same old story -- if only the government didn't screw with markets the world
would be perfect.

Gene Coyle

David S. Shemano wrote:
> Michael Perelman writes:
>
> > > Exactly.  Why is it the responsibility of the rate payers to bail out the
> > > share holders?????  Are the corps. willing to lower rates when profits are
> > > flush?
> > >     
> >   
>
> We discussed this two years ago.  The responsibility of the rate payers was to pay a sufficient amount for electricity to allow the electric companies to realize a reasonable rate of return.  However, when the wholesale price skyrocketed, the State of California refused to permit retail prices to correspondingly increase, thereby bankrupting the electric companies, thereby making a lot of California bankruptcy attorneys, including yours truly, very happy.  In effect, the State of California simply took assets from the shareholders and gave it to the retail customers.  As a further consequence, the State of California was forced to buy electricity at the high wholesale rate and then sell to at retail at the controlled price.  As a result, the California budget surplus was wiped out, and taxpayers for the forseeable future will be paying interest on the bonds floated to finance the State's buy high, sell low strategy.  Therefore, the State of California has transferred assets !
>
>  from California's present and future taxpayers to the retail customers.
>
> Under these circumstances, I see no reason why the retail customers are more symphathetic than the taxpayers or even the shareholders.  In fact, as many people are retail customers, taxpayers and shareholders, I would submit that only one group of people came out ahead -- the bankruptcy lawyers.
>
> David Shemano