Presenting the Bill for a Free Market

Quick: What’s a Competitive Transition Charge?

Here’s another: What’s a Trust Transfer Amount?

Don’t know? I don’t blame you.

But pretty soon you will know. This fall, if all goes as planned, those phrases will produce one of California’s patented political upheavals. Billions of dollars will ride on the outcome. And across the land, the rest of the country will watch and wait.

The phrases arise from California’s deregulation of its electric power industry, and you may have seen them on your bill. If so, did you pay attention? Of course not. You went brain dead instead.

So did everyone else, and that’s the problem. The process of moving old dinosaurs like Southern California Edison, San Diego Gas & Electric and Pacific Gas & Electric into the free market proved so stupefyingly boring that everyone fell asleep at the wheel.

I mean, when the switch-over finally took place in March, the lights still came on, right? Your bill stayed roughly the same, right?

If fact, maybe a tad less. A new line on the bill said “Legislated 10% Rate Reduction.” And, sure enough, the 10% got deducted from the bottom line.

So don’t worry, be happy. Except that, at the bottom of the bill, there appeared those new phrases like Competitive Transition Charge. And Trust Transfer Amount. Let’s call them CTC and TTA so we can sound like real bureaucrats.

Within those phrases lies the tale. The charges that accrue from them now amount to more than what you pay for the electricity itself.

Say you used 500 kilowatts of juice from Edison last month. The electricity cost $7.62. That’s cheap, very cheap, and represents the great benefit of the new, free market.

Then you get to the CTC, which came to $11.56. And then the TTA at $8.43.

Why were you paying Edison more for these obscure charges than for the electricity you used? Because, friends, we truly went comatose when this deal went down. We looked the other way, bored out of our gourds, while a truly bizarre negotiation was conducted in Sacramento.

The deal, in essence, obligates us to pay for every bad investment made by PG&E;, Edison and other utilities from time immemorial.

The bill for those bad investments comes to roughly $28 billion. That’s right. Billion, not million. If you want to play with the figure, think of it as more money than Microsoft has earned in profits since it was created.

It includes, among other things, payoffs for every utility-operated nuclear power plant in the state. Just one of the nukes, PG&E;’s Diablo Canyon plant, will cost us $3.5 billion.

That’s $3.5 billion in addition to the $3 billion we’ve already paid for Diablo. And it doesn’t count the electricity. It’s our obligation to pay off the remaining costs of a plant that, as of now, cannot produce energy at a free market rate.

Here’s the interesting part. PG&E; is a private corporation with shareholders. So is Southern California Edison. What is the obligation of the shareholders of PG&E; and SCE to pay for these investments that have turned lamentably sour?

Zero. Under the deal, electricity customers pay all of it. When you see the CTC charge on your bill, that’s your part of the bill for that particular month.

And thus the upheaval. “When this sinks in, people are going to be angry. We think they will be prepared to act,” says Harvey Rosenfield, the activist who last brought us auto insurance reform via Proposition 103.

Rosenfield and a coalition of other reformists have gathered more than 700,000 signatures for a November initiative that would preserve the deregulation process but force the power companies to pay for the nukes. The signatures now sit in Sacramento awaiting certification.

“Under the [Public Utilities Commission], we’ve always had electricity that cost about 50% above the national average,” says Rosenfield. “The whole deregulation scheme arose because big business was tired of paying those premiums. They went to Sacramento and said, ‘What would it take to get the utilities out of their protected status?’

“This scheme was the answer. It’s an outrage. No one can defend it.”

Maybe. The utilities already have predicted chaos and bankruptcy if the initiative passes. The chaos is arguable, but the bankruptcy is probable. So severe is the threat that the utilities asked the courts to invalidate the initiative before it even qualified for the ballot. Thus far, no decision has been made.

“The initiative would kill deregulation and all the benefits it brings,” says Alan Zaremberg of the California Chamber of Commerce. “Cheaper energy, in the long run, will outweigh any of the issues that the initiative seeks to address.”

Incidentally, you may be wondering where L.A.’s Department of Water and Power falls into all this. The answer is that the DWP, as a municipally owned utility, is spared for now. Its time will come in 2002, when it must also join the fray.

In the end no one can foresee all the repercussions of the initiative. That’s the cruelty and charm of the initiative process. They amount to bombs thrown by an angry populace that does not always care whether chaos ensues or not.

In the case of the auto insurance initiative, years of litigation followed passage. Proposition 13 left some municipalities crippled. And on and on.

This fall, the question will come down to this: Is the public angry enough to throw a bomb at the utilities and let the consequences fall where they may? Or will they be frightened by the threat of chaos?

We don’t know. But ratepayers will be reminded of the $28-billion payoff every time they receive a bill. The CTC will sit there, looking back at them.

Not to mention the Trust Transfer Amount. I’ve saved this item for last because it’s so good.

Apparently our brave legislators in Sacramento realized, late in the game, that they had given away the store to the utilities. They needed a sop to throw at the ratepayers.

The sop became the Legislated 10% Rate Reduction. Customers appear to get 10% knocked off their bills courtesy of the deregulation process.

But then came the sticky question of who would pay for the 10%. Not us, said the utilities. Not us, said the legislators.

So they devised a scheme whereby customers would pay for it themselves. Bonds would be sold to finance the reduction, and the customers would repay the bonds.

It’s marvelous. And more marvelous yet, you can see it right there on your bill. Remember our hypothetical Edison bill up above? The 10% rate reduction comes to $6.33.

Then comes the Trust Transfer Amount, which is the payment on the bonds to finance the reduction. How much is it? $8.43.

So the customer is paying $8.43 to get a $6.33 reduction. The difference is the interest paid on the bonds.

You have to laugh. Maybe they thought no one would figure out the meaning of Trust Transfer Amount. Indeed, the PUC-approved explanation of the TTA at the bottom of the bill is filled with so much gobbledygook that you can’t figure it out unless you have a lawyer at your side.

Come November, of course, the voters will not have a lawyer with them in the voting booth. They will only have themselves. And their anger.

I predict an interesting autumn.