Focus Shifts to Bailing Out Utility Firms

With the threat of immediate blackouts in California temporarily postponed with $1-billion-a-month taxpayer subsidies, the question of the day in Sacramento now turns to bailing out the utility companies.

The utilities claim to be insolvent, having spent the last six months buying electricity at 30 cents or more per kilowatt and selling it at the legally capped price of 7 cents or so.

Since ratepayers purchased power at abnormally low prices for the last six months, the argument goes, they should pay abnormally high prices into the future to make the utilities whole.

The current proposal is to force consumers to buy the utilities’ transmission lines at several times their book value, plus interest, and give them to the state as a gift. That way, it’s not really a bailout, according to Senate Democratic leaders. “You give me a dollar and I give you a hot dog,” is how one of them put it.

Some hot dog. Let’s say the deal ends up costing $8 billion. Spread among the utilities’ 10 million ratepayers, the tab for an average household comes to $800 in principal and $500 in interest, without adding a single watt to California’s generating capacity or a single inch to its transmission grid. The ratepayers end up with the tab while the state ends up with the power lines.

A more accurate description of this little deal would be “You give me $1,300 and I’ll give my friend a hot dog.” This kind of transaction usually requires a gun.

One columnist compared the transmission lines to the state’s highways, suggesting that the state would do better keeping pace with growth and maintenance demands than the private utilities. Yet during the last 10 years, the miles driven by California motorists have increased 30% while the state has increased its lane mileage by 1%.

It remains unclear how a state that has allowed its real highway system to disintegrate somehow would do any better with its newly acquired electricity “highway.”

The losses of the utility companies are currently borne by the shareholders of those companies. This is as it should be. The shareholders elected the boards and officers who largely designed the current market and who made the decision to do business in it. This would not be the first time that a company lost money making bad decisions.

The utilities allege that the Public Utilities Commission is responsible because it forced them to sell their power at a loss. They have filed suit in federal court asking for damages. This is appropriate: Our judiciary is well-equipped to judge such claims. The Legislature is not. Why would legislators rush to accept liability that no court has assigned them, and offer to sacrifice ratepayers in the process?

*

If the courts ultimately determine that California public officials did harm the utilities, the question recurs: “Why should the ratepayers pay?” The ratepayers didn’t elect the public officials and their appointees who made stupid decisions. All of the people of California did. In that case, the appropriate source for restitution would be the state’s general fund, but only to the extent that the state is adjudged liable in court.

Ratepayers made consumption decisions based upon the price they were offered at the time. If the price had been higher, they would have used less. You cannot retroactively raise the price once they’ve made those decisions any more than a store can send you a supplemental bill because you responded to its Presidents Day Sale and it ended up losing money on sale items. But that is precisely what soon may happen to those who responded to sale prices for electricity offered this winter.

Ratepayers had better get used to hot dogs. That’s all they’ll be able to afford.