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FACTSHEET

What Is Wrong with California's 1996 Deregulation Plan

Deregulation For Utilities, Costly Regulation For Ratepayers
Instead of giving consumers the ostensible benefits of deregulation -- competition leading to lower prices-- the law freezes all utility rates for four years at June 1996 levels, which were approximately 50% above the national average. The freeze requires ratepayers to pay off the costs of "stranded assets" that would otherwise force the utility companies to keep their rates uncompetitively high under deregulation. In effect, consumers are being forced to invest in and underwrite the utility companies so they can compete for big customers.

Ratepayers Pay For Nuclear Mistakes By Utilities
The $30 billion in "stranded assets" are mostly nuclear power plants that no one wanted except for nuclear manufacturers General Electric, Westinghouse, and the bedazzled utility executives who ordered them despite widespread public opposition and warnings that nuclear power would never be economical (nor safe). In other states, share holders have been forced to pay for such utility misman agement, but under this deal, ratepayers -- largely residential and small business ratepayers -- pay for all of it. Utility stockholders would have been the beneficiaries if nuclear power had been successful; they should now be the ones to pay the price for the failure for these white elephant nuclear plants.

Phony Rate Cuts
In a cynical effort to mislead consumers and small business, legislators packaged the deregulation bill to include a rate "rollback" of 10%. However, that's 10% off rates that are frozen at levels 50% higher than they should be. Moreover, under new legislation approved by the state legislature (SB 477, Peace), consumers will be required to guarantee and pay for new "bailout bonds" that will pay for the rate cut. With $3 billion in interest, and $7 billion in principle, ratepayers will pay $9 for every $1 in rate reduction they get. It's as if the Legislature forced every California resident to take a cash advance from their credit card to give themselves a "tax cut."

Propaganda Campaign
To sell this boondoggle, the Legislature has given the Public Utilities Commission authority to undertake an advertising campaign -paid for by ratepayers. The budget for this campaign is $90 million. This amount is almost as much as United Airlines' national annual advertising budget; it is $10 million more than the entire national advertising budget of the U.S. Army; and almost three times what the state spends to advertise the California Lottery. Naturally, corporate cronies of the Pete Wilson-appointed PUC have received the advertising contract: The corporate agency chosen for this campaign, DDB Needham, Inc., has almost no track record in consumer media campaigns. The contract was awarded hastily, without adequate bidding or public scrutiny.

Invasion Of Privacy
The Legislature also deregulated the utility billing process -- which was already one of the greatest problems for consumers even when it was in the hands of tightly regulated utilities. Under the new law, anyone can offer to provide energy suppliers with the right to bill ratepayers. The legislation provides no protections for consumers; yet if consumers don't pay the bill as they are told, their energy can be shut off. Worse, these billing firms have unfettered right to obtain, analyze and then sell information about your private consumption patterns and equipment to the highest bidder. Nothing controls the mining and harvesting of consumers' personal records and data.

No Consumer Representation
The deregulation/utility bailout law is an excellent example of what happens when the lawyers and lobbyists for utility companies and big business go wild in Sacramento with no truly effective counterbalancing pressure from the public. Existing consumer groups have inadequate resources to successfully defend the public against such assaults.

These deregulation laws need to provide the necessary means for consumers to join together to establish a non-governmental, non-profit, democratically elected and voluntarily-funded Consumer Utility Board to protect rate payer interests. The CUB would solicit ratepayers to join by utilizing an informational insert which utility companies would be required to enclose in their utility bills. With modest dues, CUB would hire attorneys and other experts to represent the public interest in the implementation of deregulation. A similar organization in Illinois has stopped $4 billion worth of rate hikes in Illinois since 1983.

No Voter Approval
By clever drafting, legislators mandated the biggest single bond issuance in California history without voter approval by the electorate.

Cut Off Threat
Every residential ratepayer will have to pay the utility tax on these bonds, and if they don't, their power will be shut off.









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