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Jan. 30, 2001

It's Greed, Stupid!
Debunking the 10 Myths of Utility Deregulation

WASHINGTON, D.C. – Proponents of deregulation have developed a repertoire of excuses for why electricity deregulation is failing miserably. Rather than admitting that a speculative market for a life-sustaining commodity such as electricity does not work, they have cultivated such myths as, "California just didn't deregulate enough."

In fact, if the retail price for electricity was completely deregulated as the industry suggests, the average consumer's electric bill would be $600, rather than the approximately $55 charged before deregulation, according to Public Citizen's calculations.

This is just one of ten myths debunked by a Public Citizen report released today. The report examines in detail arguments that deregulation proponents are making and explains why these contentions are false.

"Already, consumers and small businesses have been hijacked because California's deregulation law, which has allowed so-called 'free market' forces to reign in California's electricity market, has allowed power suppliers to rake in billions in excess profits," Public Citizen President Joan Claybrook said.

By both exerting market power and manipulating the next day's spot market for electricity, these suppliers keep electricity supplies low and prices high, for instance by employing unscheduled power plant closings. They have created a crisis in California that may drive the state into a recession and has done nothing to ensure that consumers have affordable, reliable electricity.

In keeping with their long-range business plans to dramatically expand sales, power suppliers blame the current problems on too few power plants. Their solution is to repeal power plant and transmission line siting laws and to suspend environmental regulations that protect people's health, so that they can engage in a building frenzy.

"If the power suppliers selling electricity in California have their way and retail prices for this important commodity are left to the vagaries of the market, the average consumer could be paying 12 times more for electricity than they were before deregulation," said Wenonah Hauter, director of Public Citizen's Critical Mass Energy and Environment Program.

The myths include:

Prices are high because California's strict environmental standards have slowed power plant construction.
In fact, there is currently more than enough capacity to meet maximum demands. Power demand during four of the past six months in California was lower than during the same period in 1999. However, power producers under deregulation have strong incentives not to run plants at full capacity or to shut them down altogether to manipulate prices. Even so, since April 1999, the state's Energy Commission has approved nine major new power plant projects, six of which are under construction.
The purpose of deregulation was to lower costs for consumers.
To the contrary, deregulation has resulted in higher prices for consumers. Even if long-term contracts are entered into with suppliers, as is being discussed by state officials, consumers will still be paying an average of three times more for the price of electricity than they would have under sensible regulation.
Deregulation is good for the environment.
Market forces driving deregulation will only encourage cost-cutting measures that will result in more pollution. In fact, deregulation creates incentives to produce power from the cheapest source — dirty coal plants. Suppliers want to continue operating these older plants as long as possible, because it costs less than building new, more efficient plants. (The new plants being proposed would run in addition to existing plants.) Deregulation thus provides no incentive for conservation, which produces no profits for power producers.
California's energy crisis is best resolved through state, not federal, actions.
Under the deregulation law, California's utilities sold most of their fossil fuel power plants to out-of-state power wholesalers who are profiting at the expense of consumers. To remedy this situation requires federal action. The best short-term solution for the crisis would be for the federal government to impose cost-based rates on these power suppliers, who now are charging utilities outrageous prices and far more than utilities are permitted to charge consumers. The federal government is the sole entity with the power to do this. This action would give California time to thoughtfully restructure its electric industry.
California's utilities are close to bankruptcy and need to be bailed out.

In fact, the utilities' parent companies have spent billions on buying other assets in recent months. They should be forced to sell off these assets before having the state – and therefore, the taxpayers – assume the burden and future risk for utility debts.
Electricity deregulation is working in other states. In other states that have deregulated, like Pennsylvania, the temporary protections that made deregulation legislation politically viable for passage are still in effect. Pennsylvania's utilities have a regulated rate for electricity that new suppliers must beat to be competitive. Over the next few years, as these protections are sunset, we will see many states follow in California's footsteps if deregulation is not canceled.

Nader's power crisis remedy: Re-regulation, conservation
By David Whitney
Bee Washington Bureau
(Published Jan. 31, 2001)

WASHINGTON -- Consumer crusader Ralph Nader said Tuesday that California's answer to its staggering electricity problem should be re-regulation of utilities, refunds of utility profits and a crash program promoting conservation and alternative energy.

Nader's remarks at a press conference here with the activist organization Public Citizen were reminiscent of the presidential campaign last year when he denounced corporate greed and political indifference as the Green Party candidate. He captured about 3 percent of the national vote, and some Democrats blamed him for former Vice President Al Gore's loss.(Note from Becky: No, he 'almost' lost because of his belief in 'the Third Way(?)'----renouncing Democratic principles and going for 'The New World Order'. He chose NAFTA, more Nuke power and the ways of the Multi-National Corporations to keep the Money flowing into his campaign coffers, rather than listen to the people.)

At the press conference, Nader chastised the California congressional delegation for not being organized and unanimous behind federal caps on wholesale power prices in the West. And he condemned lawmakers meeting in Sacramento for not seizing an opportunity to move away from its failed experiment with deregulation to rapid expansion of public power.

"Instead of bailouts and the conflict-of-interest-ridden stock warrants proposal now circulating in Sacramento, there should be a buyout of the private utilities' generating and distribution facilities," Nader said.

He said that if the state could take over Pacific Gas and Electric Co. and Southern California Edison and operate them as publicly owned utilities overseen by a residential ratepayer association, it would be able to stabilize prices without having to permit new thermal generating plants.

Nader challenged the popular notion that the West Coast is facing a major power shortage because of bureaucratic obstacles to new plant construction, saying the total demand for power has dropped in four of the past six months when supplies have been the tightest and prices at their zenith. Isn't that interesting?

The problem, he said, is that power producers are "manipulating" the schedule of plant operations and maintenance shutdowns to hike the spot price of power on the wholesale market.

"When mainstream economists start talking about these power generators reducing their power supplies just in order to increase prices, it's time for both the U.S. Justice Department and the California attorney general to launch vigorous investigations under federal and state antitrust laws," Nader said.

California Attorney General Bill Lockyear has been conducting just such an investigation, said spokeswoman Sandra Michioku.

Since last August. Hmmmmmm.


I think this was on

Nine power companies and a trade association that stand to gain the most from President Bush's hands-off policy in California contributed more than $4 million to Republican candidates and party committees during the last election, and some of the company heads have close personal ties to Bush, according to a new Public Citizen report.

Three of the companies -- Enron, Reliant Energy and Dynegy -- are based in Texas and gave more than $1.5 million to Bush's campaign, his inauguration committee, and the Republican National Committee, which served, in effect, as an arm of the Bush presidential campaign. Two companies -- Enron and Reliant Energy -- are headed or steered by Kenneth Lay and James Baker III, both close Bush advisors.

According to the report, the contributions and personal relationships could explain why the Bush administration has refused requests by bipartisan groups of eight western governors and 20 members of the California congressional delegation to intervene in the California and regional power crisis, and cap wholesale electricity prices. The companies and the association more than doubled their contributions in 1999-2000 compared to the last presidential cycles, as they pushed for deregulation in Congress and across the nation.

"It seems clear that the Bush administration is trying to return the favors done by friends and donors," Public Citizen President Joan Claybrook said. "Bush is helping out his buddies at the expense of every consumer in California, and his refusal to cap wholesale prices is threatening to wreak havoc on the entire western region of the United States."

The Bush administration has the authority to intervene in the crisis through the Federal Energy Regulatory Commission (FERC), which can impose "just and reasonable" wholesale prices, according to federal law. However, Bush has declined to call on FERC to act in the face of price-gouging by and skyrocketing profits of wholesale power companies. Recently, FERC imposed such price caps in the Northeastern United States.!!!!!!!!!!!!!!!!!!!!

Public Citizen's analysis shows that the trade association, the top nine power suppliers involved in California's market and their executives gave nearly $4.1 million to Republican candidates and party committees, including more than $1.5 million to Bush and the Republican National Committee. In addition, they gave $500,000 to the Bush-Cheney inaugural committee during the 1999-2000 election cycle.(Hmmmmmmmm)

"This once again shows why we so desperately need genuine, loophole-free campaign finance reform that removes the ability of big corporations to push their agendas onto the rest of the country," said Wenonah Hauter, director of Public Citizen's Critical Mass Energy and Environment Program. "Clearly, the money in this case is having a huge impact on the way the administration handles energy issues." (AMEN.)

The top three contributing companies were Enron, Southern Company and Reliant Energy. The remaining seven entities are the Edison Electric Institute (an industry association), Williams Companies, Duke Energy, Arizona Public Service, Dynegy, AES Corp. and Calpine.

Enron's CEO is Kenneth Lay, a long-time Bush family friend and an architect of Bush's policies on electricity deregulation, taxes and tort reform while Bush was Texas governor. Baker, who serves on Reliant Energy's board of directors, is also a long-time Bush family adviser who oversaw Bush's legal efforts in the Florida election controversy. Baker Botts, the Houston law firm founded by Baker's great-grandfather and where Baker is a partner, was one of the largest contributors to the Bush campaign, contributing $113,621 in 1999-2000.

Further, two Reliant Energy top brass are members of the Bush "Pioneers," an elite group of people who pledged to raise at least $100,000 each to help launch Bush's presidential campaign. Bush Pioneer Don D. Jordan was CEO and chairman of Reliant Energy until June 1999 and December 1999, respectively. Pioneer Steve Letbetter, Reliant Energy's current CEO, is a long-time top corporate officer of the company. The company and its employees gave $47,000 to Bush's gubernatorial campaigns in 1994 and 1998, and gave Bush and the RNC $289,000 for last year's election.

Many have blamed California's energy crisis on a faulty deregulation plan in which the government could cap the rates utilities charged consumers but was not permitted to control the prices wholesalers charged the utilities. As a result, the utilities have been threatening to file for bankruptcy because they cannot charge customers enough to cover what they owe wholesalers.

Meanwhile, the price of wholesale electricity in California was 276 percent higher last year than in 1999, and the top 10 sellers and marketers posted profits that were 54 percent higher in 2000 than in 1999, according to the companies' published financial reports.

Three of the Houston companies -- Enron, Reliant Energy and Dynegy -- reaped huge profits last year. According to company financial reports filed with the federal Securities and Exchange Commission, Enron posted a 42 percent increase in profits last year, while Reliant's profits rose 55 percent and Dynegy realized a whopping 210 percent profit. Profits for the other six companies ranged from 3 percent (Southern Company) to 240%.

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