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Statement of Wenonah Hauter, Director of Critical Mass Energy and Environment Program

April 6, 2001

Statement of Wenonah Hauter, Director of Critical Mass Energy and Environment Program

PG&E’s decision to file for bankruptcy protection will make it more difficult for the state to negotiate deals with power generators to bring reliable and affordable electricity to consumers, and it could put an end to the state?s efforts to take control of transmission or generation assets as a method to regain control over sky-high wholesale prices. As a result, PG&E’s bankruptcy filing will result in even higher prices and less reliability than was predicted earlier for this summer.

PG&E claims that bankruptcy is its only option because it cannot pass the exorbitant costs of wholesale electricity on to its customers due to the retail rate freeze. The rate freeze, however, was a crucial compromise supported by PG&E in the 1996 deregulation legislation. The utility demanded that consumers pay more than $8 billion of the utility’s stranded costs; payments the utilities owed on nuclear plants and other poor investments from the past. Since consumers would be overpaying for electricity to cover these stranded costs, PG&E agreed to a rate freeze. In exchange, PG&E willingly agreed to accept market risk.

PG&E has had its way with California elected officials throughout deregulation’s failure. Instead of shoring up the utility’s financial condition, the company used consumers? stranded cost overpayments to go on a $9 billion, out-of-state shopping spree. At the same time, PG&E convinced lawmakers that the only way to avoid bankruptcy was for the state to spend tens of millions of dollars a day purchasing overpriced electricity on its behalf. Finally, PG&E successfully persuaded federal authorities in January to allow it to transfer its assets to a ‘new’ corporate entity, with the sole purpose of shielding assets from bankruptcy proceedings. These greedy tactics will result in higher taxes and higher electric rates for California households and businesses.

There is plenty of blame to go around. No doubt former Gov. Pete Wilson and the 1996 Legislature lied to California consumers about the supposed benefits of deregulation. But PG&E and the other utilities lobbied hard for the legislation, contributed tens of millions of dollars in campaign contributions to ensure its passage, and made huge profits under the first few years of deregulation. California must demand that PG&E shareholders assume the costs for the utility’s mistakes?not taxpayers.