Utility Claims Doubtful, Lawmakers Told
Two consumer groups told legislators Thursday that audits of Southern California Edison and Pacific Gas & Electric “cast serious doubts on the claim that the utilities need immediate relief in the form of a state-sponsored bailout.”
Consumers Union and the Utility Reform Network, or TURN, said the Legislature and Gov. Gray Davis are rushing ahead with their recovery plan, despite signs that the utilities will have enough cash to survive at least through the end of March after the state begins buying power on their behalf.
The groups’ comments underscored how the utilities’ payments of billions of dollars to their parent companies in the first years of deregulation are likely to become more of a political issue in Sacramento as legislators turn from the immediate energy crisis to the utilities’ long-term financial recovery. The comments came in a memorandum to legislators issued in Sacramento.
The utilities’ improved cash position from the state’s power purchases, the consumer groups said, should leave enough breathing room for the state to craft a recovery plan that would be fair to consumers and not just serve the interests of the utilities.
The independent audits--an examination of Edison by the accounting firm KPMG LLP and one of PG&E; by the consulting firm Barrington-Wellesley Group--were commissioned by the state Public Utilities Commission.
The audits confirmed the utilities’ dismal financial conditions but noted that both have paid billions of dollars in profits to their parent holding companies, Edison International and PG&E; Corp., since deregulation was launched at the beginning of 1998.
In particular, the Barrington-Wellesley audit report sharply questioned the financial relationship between PG&E;, the utility, and PG&E; Corp., its corporate parent--suggesting that the utility has sent hundreds of millions of dollars more in cash to the parent than it owed.
From 1997 through 1999, the audit said, the utility paid $663 million more in cash to the parent for income taxes than the parent actually owed to government tax collectors for all its subsidiaries put together; in other words, the utility covered the entire corporation’s tax obligations, and then some. The parent did not refund the money to the utility, according to the auditors, but instead applied it “to other [corporate] activities,” presumably including dividends to shareholders.
Moreover, the audit said, the parent has applied to the Internal Revenue Service for a refund on year 2000 taxes of as much as $1 billion because of the utility’s losses--but nothing in the holding company bylaws requires that it remit any refund back to the utility.
The holding company has asked the IRS for an expedited refund that could arrive as early as this month. But, “The application of the cash from the eventual refund is not certain at this point,” the auditors said.
