Borrow Now, for the Wolf Is at the Door
Sometimes, to beat back the financial wolf at the door, a family will take a risk, dipping into the savings they have set aside for their future and their children in order to survive the day. The hope is that the family will weather the storm, get back on its feet and repay the nest egg that they had labored to build.
In January, the financial wolf of predatory power generators knocked at California’s door, sending power prices through the roof and threatening to shut off the lights. To keep electricity rates from jumping more than 200% and to insulate our economy from an electric shock, state government borrowed more than $6 billion from its general fund to pay the electric bill for millions of the state’s businesses and homeowners. The general fund is California’s nest egg--money set aside for programs such as education and children’s health care and for investments in our future such as transportation and parks.
There were and are legitimate questions about whether the state should have taken that risk and whether there were other ways of beating back the wolf--from letting the lights go out to seizing the generators’ plants. But the money was borrowed, and now it is time to replenish the general fund and maintain the state’s fiscal solvency.
That is why the state treasurer’s office is moving forward to sell $12.5 billion in bonds authorized by the Legislature and approved by the governor. These bonds will be repaid over the next 15 years by electricity customers of the state’s three privately owned utilities--PG&E;, Southern California Edison, and San Diego Gas and Electric. The proceeds from the bonds will largely go to restore the general fund and repay loans taken to fund energy purchases.
If electricity rates had been adjusted in January to fully pay for the outrageous power costs resulting from a disastrously deregulated energy market run amok, the average California household could have seen its monthly electric bill triple. These increases would have devastated families and businesses and potentially sent California’s economy into a tailspin. These costs have not magically disappeared. The bonds allow these costs to be stretched over time at a low interest rate so that California can, like the family facing financial stress, get back on its feet.
The energy bonds are slated to be sold this fall so that the state’s fiscal house can be put in order. But there are rumblings that some--possibly power generators or the utilities--might try to stop the bond sale through legal challenges, holding up the state until their demands for power costs are met. This action would be wrong-headed. No responsible Californian or corporation should stand in the way of repaying the nest egg that was lent in a time of crisis.
Concerns have been raised about whether selling more than $12 billion in bonds will hurt the state’s efforts to sell bonds for other critical needs such as schools, parks and transit. Each year, state and local governments sell approximately $200 billion in municipal bonds, so this $12-billion issue and the state’s other planned bond issues will be easily absorbed by the marketplace. Ironically, if the state’s general fund is not repaid, California’s credit rating and its ability to sell bonds in the future at reasonable interest rates will be seriously jeopardized.
California will survive the wolf. It will not be without cost or consequence. What should not be forgotten in this season of survival is that the wolf got to our door through the ill-fated decision to trade a century of investment in public power and regulation for a deregulated market. To ensure our economic security, let us commit ourselves now to controlling our own energy destiny through investments in public power, renewable energy, conservation and regulation of the power industry.
