Dear Readers: Our post-election article on Proposition 227 provoked a surprisingly large response from readers -- more than 60 e-mails in a few days. I heard from the leadership of the NO on 227 campaign (who reflected thoughtfully on their loss) and from Ron Unz (who refuses to believe the exit polls reporting 2 to 1 Latino opposition to 227). I also heard from the President of the PTA, from one of June's statewide candidates, and from members of the media. The San Jose Mercury ran the article on its op-ed page. The Sacramento Bee invited a longer piece that ran a week later. It was a lesson for me about how hungry people are for real analysis.
In this issue we look ahead at what will assuredly be the hot proposition on this November's ballot -- a utility reform initiative which pits PG&E and Southern California Edison against Consumers Union and other consumer groups. It is a case study of the kind of David vs. Goliath economic battle that Hiram Johnson and the Progressives had in mind when they created the initiative process 87 years ago.
Jim Shultz
The Democracy Center
[Note: To my regular e-mail correspondents, I will be on vacation from June 25 to July 13 and will be back in touch afterwards.]
In March of this year Nettie Hoge, the executive director of the utility consumer group TURN, called me up to get some advice on an idea for an initiative. TURN, Consumers Union and others had been debating and delaying for months on whether to attempt a November ballot campaign to undo the controversial utility deregulation deal approved in the Legislature in 1996. I took one quick look at the calendar and told her she was whacko. "Right, you have no volunteer organization in place, no money in the bank and you are going to qualify an initiative in six weeks," I told her. "Want to buy a bridge?"
Sometime in the next week the California Secretary of State will officially declare me wrong and will certify that consumer groups have pulled off one of the great political coups of this election year. By gathering more than 700,000 signatures in less than two months they will have formally succeeded in qualifying their "Utility Rate Reduction and Reform Act" for the November ballot. A full third of those signatures were gathered in the old fashioned way, by more than 500 volunteers who care about the issue, organized by the Ralph Nader-inspired "Oaks Project". The rest were gathered by a paid signature firm.
** THE ISSUES
The consumer fight over reforming the utility industry has its roots in a deal crafted by state lawmakers two years ago. The utility industry and their allies in the state's corporate community declared that it was time to bring competition into the monopoly world of providing electricity. "Let new companies get into the game," the utilities declared, "and let consumers pick the company that will give them the best deal."
The result was a legislative utility plan that made the companies happy and left consumer group's complaining. For most of the rest of us all we really understand is that there are a whole lot of new billboards around warning us about "changes in the electric industry". I especially like the one with the confused woman about to drive her convertible through a car wash with the top down. I don't understand it but as my son Miguel would say, "it looks cool."
So what does the Consumers Union/TURN initiative actually do and what are the policy issues that reporters, pundits and voters ought to be talking about between now and November? With the help of one of my graduate policy students at San Francisco State, Kevin Mullin, here are the three key issues:
1) Who should pay for the utilities' $11 billion nuclear power debt?
In the 1960s and 1970s California utilities were hot to trot for nuclear power, investing billions in nuclear power plants despite ample warnings from environmentalists and others that nuclear energy was a bad move, both ecologically and economically. PG&E and the other utilities didn't listen and much of the critique by nuclear opponents turned out to be true. Today California utilities are stuck with about $11 billion dollars of what economists call "stranded investments" (what regular people would call bad debt) from plants like Diablo Canyon that didn't pay for themselves.
The utility deal passed by the Legislature says that ratepayers have to pay off the nuclear debt by including it in our monthly electric bills. The Consumers Union/TURN initiative would require that utility companies and their shareholders pay a part of the price tag as well, about 25% of it. Personally, since the utility companies never offered to help me pay off my student loan debt, it sounds reasonable that PG&E and the others should at least have to pay for some of their losses on nuclear power.
2) Should Consumers be Borrowing Money to Finance a Rate Cut?
Another feature of the deal approved by state lawmakers two years ago is a 10% rate cut on all our electric bills for five years. That's the good news. The bad news is that the rate cut is paid for by issuing bonds (i.e. borrowing money) that we will pay back with interest over ten years. It is a little like boosting your spending power for a while by racking up debt on your credit cards, essentially what we did with the federal debt during the 1980s? The 10% rate cut gave lawmakers and the utilities something to talk up with the public, but the consumer groups criticize it as a shell game with consumer dollars. Their initiative bans the practice of borrowing to finance rate cuts.
3) How much of a rate cut should there be?
The Consumers Union/TURN initiative calls for a 20% rate cut. Utility companies will warn that this cut combined with the requirement that they help pay a share of the nuclear debt will make it impossible for them to do business. The consumer groups counter that once the utilities chip in to help pay of their own nuclear power debts that consumer rates could easily be dropped by 20%.
** THE POLITICS
Why are the consumer groups taking an arguably complicated issue to the oversimplified realm of the ballot? Why did David use a sling to go after Goliath? It's what he had. To be sure, there are two sides to this debate. But in the Legislature those two sides confronted one another on that most uneven of playing fields, lawmaking under the shadow of millions of dollars in industry lobbying and campaign contributions. It is exactly for conditions such as these that the initiative process was created.
Already the utilities have signaled that they are ready to wage one of the most expensive and ruthless initiative campaigns in the state's history. On the Friday afternoon before Memorial Day Weekend the utility campaign filed legal papers seeking to prevent the initiative from being on the ballot altogether. The timing was deliberate, an attempt to avoid notice from reporters distracted by their own three day weekend and the final week of June primary coverage. Consumer advocates were not so lucky. Nettie Hoge and others were named personally in the suit, making they and their families personally liable for the utilities mammoth legal fees if the companies can find a court to go their way. In politics this is called "hardball".
All this a preview of a fall campaign in which the utility companies may break all records for initiative spending. One could even argue that corporate leaders have a fiduciary responsibility to their shareholders to try to buy the election. The big winners, no matter what the result, is the army of political consultants set to get big money for their efforts to defeat the consumer measure.
So get ready for the claims, "it will wreck the economy, it will destroy jobs, it will raise taxes," the usual script used by corporations under initiative attack. Consumer groups will need to take care not to fall back into oversimplified rhetoric of their own. There are legitimate policy questions raised by this initiative and all sides have a responsibility to debate them. So, if you are still in recovery from the June election, you ain't seen nothing yet.
For more information on the initiative on the Web visit:
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