CNN is running what has to be the worst story line yet in the ongoing power crisis in California. According to CNN an audit of the largest electrical utility in California, Southern California Edison, made about $5 billion in profits from 1996-2000.
Now, of course, as the price that SCE has to pay for electricity has skyrocketed, while the price it can charge to consumers has remained the same by statute, SCE is in big trouble and is in debt just about $5 billion.
So what is the conclusion from these two sets of facts? According to Democrats such as California Senate President Pro Tem John Burton it is that, “Basically they took the money and ran.” If they’d kept those profits in SCE rather than sending the profits to SCE’s corporate parent, Edison Electric, SCE would have broken even.
Not. If SCE makes $5 billion in profits from 1996 to 2000 and then lose $5 billion from November 2000 through January 2001, it hasn’t broken even but rather has lost hundreds of millions of dollars since the capital sunk into SCE would have been a lot better off spent in some other sector of the market where it could earn a normal rate of return. With the situation described by CNN, SCE doesn’t even keep up with inflation.
This is exactly the sort of talk that makes companies not want to invest in California since what Burton and others are really saying is that it was wrong for SCE to want to make a profit. Instead of making profits, SCE should hold any surpluses it has to cushion the blow when the California legislature screws up again.
Source:
Audit: California utility reaped $4.8 billion dividend before power crisis. CNN, January 30, 2001.