Massachusetts Law Includes Utility Bailout, Securitization "Shell Game"

Consumer advocates celebrated Community Choice in Massachusetts (see cover story), but sharply criticized the law for bailing out the state's utilities, which will be allowed to recover 100 percent of their stranded costs. The bailout will cost each Massachusetts consumer an average of $3,000 and represent approximately 40% of next year's electric bills. "Legislators bought the utility propaganda hook line and sinker," said Rob Sargent of the Massachusetts Public Interest Research Group; "consumers got rolled by an army of utility lobbyists."

Community Choice supporters emphasized that community choice is even more necessary because the bailout will make the market so uncompetitive that alternative suppliers will stay away, as has already happened in California. "This adds a huge tax to every consumer's bill, making it harder for competitors to beat the standard offer," said Matthew Patrick, of Cape & Islands Self-Reliance, an organizer for Community Choice. "If forty percent of the bill is a tax, and transmission and distribution fees are uniform, suppliers can only compete over a fraction of the total bill. So aggregation will only work in large groups buying a lot of power to find a good, credible supplier. Otherwise we get the worst of both worlds; the bailout keeps the nuclear plants on line and erects a market barrier that will keep competitors out."

Critics say the Massachusetts bill also imitates California's bailout by employing "securitization" to finance a deceptive "guaranteed ten percent rate reduction" on electric bills beginning March 1, 1998, followed by another five percent after the state's utilities divest their generation assets in 18 months. "It is a shell game by which you trick consumers into believing they are winning, said Patrick. "This is an innovation in deficit spending to finance a massive corporate bailout: only not as taxpayers, but as competitive-transition-chargepayers." The Massachusetts bailout is modeled on California's 1996 law, which may face a statewide referendum for repeal, led by Californians Against the Utility Tax (C.U.T.) in 1998. A similar referendum is being organized in Massachusetts.

Like California's law, the Massachusetts law's promised rate reductions are not actually guaranteed. The law provides that if utilities"are unable" to deliver the promised reduction, consumers can petition the state, which will attempt ("within the limits of its authority under the constitution") to identify a supplier who can. Otherwise, the state will use a fund containing capital gains taxes collected on the (voluntary) sale of divested power facilities to provide the additional 5 percent.

Critics say that the law also lacks any serious measure to ensure that utilities do not exploit stranded costs to gouge consumers. While the legislation calls for stranded costs to be reviewed by an Audit Board, the Conference Committee deleted language written into the House version of the bill that would have made the review of utility claims subject to item-by-item scrutiny to exclude "wasteful" investments. Sargent added that the law contains weak anti-trust protection against corporate abuse. "Now (the holding companies) can use the money from the bailout for other things besides electricity; they're not restricted."

Copyright (c) 1998 by the American Local Power Project