An epic $30 million-plus California electoral war over billions in utility subsidies has bitterly divided the national environmental community. Its result may well decide the fate of nuclear power and the U.S. utility industry.
The war is over deregulation and "stranded costs," the megabillions utilities have invested in nuclear reactors and other electric generators that may not be able to compete in an open market. The national fire was ignited in September 1996, when Gov. Pete Wilson signed AB 1890 into law. Passed unanimously by the California legislature, the bill set a January 1998 date for introducing competition into the state's huge electric power market.
It also handed the state's three dominant utilities -- Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric -- some $28.5 billion to subsidize capital investments in generators unable to produce electricity cheap enough to sell competitively in a market increasingly dominated by inexpensive natural gas. In the California market, the investments were concentrated in two nuclear reactors at San Onofre, between San Diego and Los Angeles, and two more at Diablo Canyon, outside San Luis Obispo. According to their owners, these plants would almost certainly shut down in the face of cheaper juice coming from generators powered by methane.
The giveaway of huge sums of cash to cover investments in reactors that drew massive public opposition when they were built infuriated consumer and environmental groups, particularly those affiliated with Ralph Nader and those with long-standing opposition to atomic power. "Thousands of people were arrested opposing those nukes," says Paul Fenn, an Oakland-based activist who runs a Web site on deregulation issues. "Now the utilities say the public should pay for them. It's repulsive."
The measure split the state's environmental community. AB1890 drew critical support from the nation's two leading environmental groups, the Natural Resources Defense Council (NRDC) and the Environmental Defense Fund.
Based in San Francisco, NRDC's Ralph Cavanagh helped get some $500 million in solar and conservation funding stuck into AB1890. The bill also contained a 10 percent rebate for residential consumers. Cavanagh says he supported AB1890 because of the subsidies for renewables and conservation, and because he favors competition. With Cavanagh as its high-profile "godfather," AB1890 sailed through the legislature before the opposition could organize.
But embittered green critics point out that loopholes in the law could mean the solar and conservation subsidies would never materialize. "The state had a number of expensive contracts that were about to expire, and that would have helped lower overall electricity costs by about 15 percent and would have prompted solar and conservation to come online naturally," says Eugene Coyle, a Bay Area consumer activist.
"The rebate is a fraud," says Herb Chao Gunther of the San Francisco-based Public Media Center. Gunther notes that the utilities will pay for the rebate by issuing bonds, "which will cost consumers far more in the long run than they allegedly save."
Gunther joined with Californians against Utility Taxes, a grass-roots group affiliated with Nader and led by Harvey Rosenfield, who spearheaded the campaign to regulate insurance companies in California several years ago. Gunther's PMC poured nearly a million of its own dollars into a breakneck spring campaign to gather 700,000 signatures and put Proposition 9 on the fall ballot. "Prop. 9 voids the bond sale on which the phony rebate is based," says Gunther. "It ends the stranded cost rip-off. It demands the utilities compete on an even playing field, which they obviously don't want to do." Prop. 9 also has the support of the Sierra Club, Consumer's Union and the League of Women Voters.
According to campaign filings, the utilities have already raised almost $30 million to defeat Prop. 9, and have lined up some 2,000 organizations, including industrial and retail trade organizations, chambers of commerce, both major parties, most elected officials, the state's major unions and many of its civic and ethnic coalitions as well as certain environmental groups. "They've called in every favor they've bought over many years of carefully giving out donations," says Gunther. "They've gone all out."
The anti-Prop. 9 forces include the Planning and Conservation League (PCL), an alliance of 33 environmental groups. PCL's opposition to Prop. 9 has enraged some of its members, including Communities for a Better Environment and Friends of the River, who are not opposed to the measure.
But it's the role of NRDC's Ralph Cavanagh that most disturbs environmental activists. Media calls to campaign headquarters are routinely forwarded to Cavanagh, who's become the bailout campaign's de facto spokesman. "He sold us out," says activist Marc Cooper, understating the fury of mainstream environmental groups.
Cavanagh's role stems from a long apprenticeship with John Bryson, an NRDC co-founder who now heads Southern California Edison. Cavanagh insists competition will lower rates in the long term, and has already been a success at breaking up "obsolete power plant monopolies," he says. Those embattled nuclear plants will shut sooner or later anyway, he adds. In the meantime, AB1890 offers "a $2.4 billion minimum investment in green energy and other energy efficiency programs. And even though consumers will finance the rate reduction, they're still getting a break. The plan refinances high-cost debt with low-cost debt." Prop. 9, Cavanagh says, "would invite paralysis in an industry where change is urgently needed; in our opinion, enactment would lead to years of litigation and delay."
The outcome in California will likely have effects nationwide. The Washington-based Safe Energy Communications Council estimates that more than $110 billion in nuke-related stranded costs are at stake in just seven key states. Wenonah Hauter of Ratepayers for Affordable Green Energy, a national coalition, says granting those subsidies will prolong the life of dozens of commercial reactors, which "are growing increasingly dangerous day by day." AB1890 contains operating subsidies that may keep California's four reactors running deep into the next century.
Stranded cost opponents are also on the ballot in Massachusetts -- where, ironically, PG&E has already spent billions buying up generating facilities. There are parallel legislative and court fights in New Hampshire, Ohio, Pennsylvania, Illinois and a dozen other states. On Oct. 10, Rep. Dennis Kucinich, D-Ohio, introduced national legislation to Congress that was drafted in cooperation with Hauter's group, RAGE, and that contains strong consumer and environmental protections.
At the very least, the fate of dozens of commercial reactors and hundreds of obsolete coal and oil burners hang in the balance. But nothing is likely to pass Congress until 1999, and many states are holding back until they see what happens nationally. Then this all must be sorted out in the courts.
Meanwhile, fewer than 100,000 of California's 10,000,000 households have switched to new electric providers since deregulation took hold on April 1. Competition seems to be developing for large, industrial business, but virtually no companies have come forth to compete for the residential market.
Prop. 9's supporters have raised well under $500,000, and Gunther predicts the utilities will "outspend us 100 to 1, maybe more. It shows how much they stand to gain." But one CUT organizer says, "We've seen five polls with five different results. Nobody knows how this is going to come out."
"The utilities have spent so much now the only thing they might prove is you can buy a referendum with unlimited money," says Hauter. "What's key is that the issue is being contested at the grass roots, in Congress, in the courts. This will be a very long, complex fight."
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