Bee Column

Dan Walters: When will piper be paid?

(Published Feb. 14, 2001)

Fair use for educational prurposes only!

The Wall Street Journal concluded last week, in a lengthy article about California's electric power crisis, that it has had little impact on the state's high-flying economy "despite loud cries of anguish."

But the article gave short shrift to a dirty little secret: Californians haven't really felt the impact because politicians have held utility rates down by running up huge debts. And they are being very coy about when and how much the piper will be paid.

At first, the three privately owned utilities absorbed the debts as wholesale power costs skyrocketed, but consumer rates were capped. Within months, the debts forced the utilities to near-bankruptcy and their creditors shut off the money spigot. That's when the state began buying at sky-high spot market rates and began acquiring big debts of its own.

The state is spending roughly a billion-plus dollars a month on power and is receiving very little, if any, revenue in return. That money is being diverted from a variety of state treasury accounts and, in theory, will be repaid when the state floats billions of dollars in power purchase bonds later this spring.

By the time the bonds are sold, however, the state will have spent several billion dollars. If it were to recapture those funds -- essentially loans to the power purchase program from taxpayers and/or short-term notes -- all at once, it could easily trigger a stiff utility rate increase to service the bonds.

What's afoot, although no one will admit it publicly, is a scheme to avoid sharp boosts in power rates, especially before the November 2002 election, by stretching out the impact over 10 years or so -- running up interest charges all the time, of course.

And if that means repaying taxpayers gradually, rather than all at once, it also would mean less money for other purposes.

There's a less-than-stellar precedent for such a shell game. The ill-conceived, misnamed utility "deregulation" plan adopted by the Legislature in 1996, which led to the current crisis, contained a 10 percent utility rate decrease for four years, financed by bonds that would be repaid by ratepayers over 10 years.

It was like buying an automobile with a useful life of five years with a 10-year loan, and the politicians want to do it again.

The scheme is questionable even if it goes just that far. But we also don't know what the state's "long-term" power purchases are going to cost us because the Davis administration is refusing to release details.

One suspects, however, that if the contracts were at levels as low as administration officials were publicly seeking, they'd be trumpeting their triumph to the heavens. Thus, the secrecy makes one suspicious.

We also don't know whether rates will be boosted to pay for the utilities' own debts, as they are demanding in a federal court case, but it's at least a 50-50 chance.

The state Public Utilities Commission authorized an average 10 percent "temporary" utility rate increase in January. Everyone in the Capitol assumes it will become at least semi-permanent. The 10 percent, ratepayer-financed reduction enacted in 1996 will expire next year, although consumers will be paying for it for many years thereafter. It's likely that rates will automatically increase then, as well.

While there are many, many factors still unresolved, it's not at all unlikely that power bills for the 70 percent of Californians who live in the private utilities' service areas will eventually jump 25 percent or more, either directly or in the form of rates being maintained higher than they otherwise would be to pay off huge, long-term debts.

And what will that do to California's economy? Economic development recruiters from other states with much-lower power rates are already sniffing around.

DAN WALTERS' column appears in The Bee daily, except Saturday. Mail: P.O.Box 15779, Sacramento, CA 95852; phone (916) 321-1195; fax: (781) 846-8350; e-mail: dwalters@sacbee.com

-- Swissrose (cellier@azstarnet.com), February 15, 2001