Regulating Change

Bush will likely gut national health and safety regulation; local liberals screw up regulation by forgetting its purpose -- protecting the general public

Bankruptcy and renewal are the Western Way.

Yet as we speak, PG&E and its political valets are trotting out the same arguments they always have for protecting this inefficient, abusive behemoth: Its stocks are a favorite of pensioners, and they'd lose their savings in the event of a bankruptcy; its employees number in the thousands, and would go without jobs in the event of a bankruptcy; a massive interruption in power service would ensue during a bankruptcy; and, the most pathetic yet oft-trotted-out excuse, the current regulatory structure isn't PG&E's fault, so it shouldn't suffer.

But the moment our elected officials begin to imagine that their duties include protecting the financial instruments of huge corporations, the rest of us are left in the cold. And, frankly, the arguments against letting PG&E face the economic facts of life are ephemeral and unpersuasive.

Pension funds also include stocks such as Chevron and Intel. Should we throw these firms a bone or two whenever they're in trouble? No.

If PG&E went bankrupt, jobs wouldn't disappear -- they'd just move from PG&E to independent, competing producers. As with other Bay Area technology industries, the sorts of innovations resulting from competition might actually increase the number of electricity-related jobs.

Sure, if PG&E had to file bankruptcy, there would be a risk of power interruptions -- that's why state regulators should be holding hearings to determine ways to preserve service during bankruptcy proceedings.

As for the argument that PG&E is fettered under a regulatory scheme it's not responsible for, the money tells a different tale. Consider the $85,000 PG&E gave Gray Davis' campaign committee last year, and the $170,000 that restructuring-sponsor and state Sen. Steve Peace collected from energy interests for his 1998 re-election. Combined with the thousands of lobbyist hours spent helping draft the 1996 legislation, this money spigot suggests the monopoly energy companies had a great deal to do with the current state of affairs vis-à-vis power in California. Is it any surprise that Davis' government hasn't said a peep about trying to make a PG&E bankruptcy a viable option?

Back during the mid-1990s, when Mexico's government was performing a Ma Bell-style breakup of its old monopoly telephone company, we ran a story out of AP/Dow Jones' Mexico City office, where I then worked, about a similar cozy relationship between regulators and the telephone company Telefonos de Mexico.

The way the government figured it, if Telmex fees were set too high by regulators, the company's stock would rise; too low and it would drop. These bureaucrats didn't want to rile the company's stock price, so they phoned a few Wall Street brokers to test the market, then set rates accordingly. Foreign telecommunications investors viewed this as evidence of a cozy, even corrupt, relationship, and took their money elsewhere.

Today, California is supposedly performing a Ma Bell-style breakup of its old monopoly electricity system, yet finds itself in a similarly cozy relationship with PG&E. Like the Mexicans protecting Telmex's stock price, Gray Davis' Public Utilities Commission is threatening to raise electricity rates in order to defend the value of PG&E's corporate debt.

He should be ashamed.

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