Union-Tribune Editorial

Subsidized power State can quickly blow all its revenues

February 8, 2001

Is anybody concerned that California will spend about $2 billion from its general fund by the end of this month for emergency power purchases? That's not money from ratepayers. It's from the budget surplus, money that ought to go to schools, highways, health care, water projects.

What's happening to all these important spending initiatives as money is drained to pay for electricity on the spot market? "It devastates them," Senate President Pro Tem John Burton, D-San Francisco, said recently. "I don't want to think of it."

Burton and all Californians need to think about it. While all the general fund money spent on power purchases is supposed to be refunded when state bonds worth $10 billion are sold, that sale won't happen until at least May. Meantime, these raided programs go begging. While the state had little choice but to spend this money, because of the high price of energy on the spot market, it must be paid back as quickly as possible.

However, this whole situation should be a flashing red light to state taxpayers. While the $10 billion in bonds for long-term energy contracts are supposed to be paid through electricity rates, there's ample opportunity for the state to subsidize rates indirectly.

With Gov. Gray Davis and lawmakers loathe to raise electricity rates, the temptation will be there to use the general fund to subsidize them.

That's one more argument why we need the utilities back on their feet. The utilities pass through energy purchases at cost, plus operations and maintenance, under a mandate from the California Public Utilities Commission. But the state itself, which has become a major purchaser of wholesale power through the long-term contracts legislation, is under no such mandate. The fear isn't that the state will charge ratepayers more. The fear is that the state will charge less, and pay the difference with general fund monies.

A proposed state takeover of the utilities' transmission grid, as part of a bailout for Southern California Edison and Pacific Gas & Electric, causes concerns for the same reasons. With the state running the transmission grid, general fund monies will always be in play. The state could wind up spending the budget surplus buying and operating the transmission grid.

We don't have much confidence in the state's ability to run the grid, an operation in which government has little expertise. Burton, who champions the plan, says it wouldn't require a new bureaucracy. Really? Who would run it, then? And who would ensure that the much needed expansion of the grid is undertaken? The Legislature?

The proposal to exchange a state bailout for low-priced stock options, or warrants, in the utilities makes more sense. The reason is simple. Once a bailout is approved, the utilities' stock would very likely go up. The state could make money on a stock deal, rather than get involved in the risk of owning and operating 26,000 miles of the statewide electricity grid.

http://www.uniontrib.com/news/uniontrib/thu/opinion/news_1ed8power.html

-- Martin Thompson (mthom1927@aol.com), February 08, 2001