Debunking Energy Deregulation and other assorted baloney the Memes are feeding on

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Debunking the Ten Myths of Utility Deregulation

-- (doc_paulie@hotmail.com), February 15, 2001

Answers

I think I'll change my nick to memesy.

-- dudesy (dudesy@37.com), February 15, 2001.

Food Radiation - Wal-Mart

-- What are you eating? (better@watch.it), February 15, 2001.

So -- the answer to having cheap energy forever is for the government to pass a law making high energy prices *illegal*, dammit!

Now why didn't we think of that earlier? It's all so simple...

-- Flint (flintc@mindspring.com), February 15, 2001.


We demand cheap, non-polluting, glitch-free power. This is our right!

We demand 10 pounds of shit in a 5 pound bag!

Off the pig!

-- (LeonTrotsky@Potemkin.village), February 15, 2001.


Gasoline at the pump isn't regulated. We all piss and moan about paying a high price for it, but we do it because we love to drive our cars. No doubt the cost of energy is hitting where it hurts. Maybe, just maybe, people will learn to turn off lights, turn down the thermostat, and use their microwaves more. We're a nation of waste - so pay for it, but don't bitch about it.

-- noenergy (noenergy@pooped.poop), February 15, 2001.


Did any of you actually read the article at the link? ? ?

BTW the food link someoneposted is better accessed thru this page.. http://www.citizen.org/cmep/rad- food/radfoodindex.htm for folks wanting a better look inside how and what WalMart is.

Call me naive, but when did the average American sell-out to the God Corporation? I really find it the height of stupidity to defend US based Cartels and badmouth your neighbors. To claim this whole thing is because Bob bought a computer, doing so when the facts show this has little if anything to do with anything, is surreal. That consumption is normal.

Are we to believe the energy industry in California just caught off guard here? That they blew the management of energy this badly? That the demand was unexpected? that be NORMAL NEEDS? Sounds like the ghosts of Y2k reasoning to me with the personal hatred to feloows attached. Thousands of folks just what? fell asleep? That MILLIONS of business owners and investors just didn't bother to find-out if energy would be available to run their businesses?

To hear the SHORTAGE crap again and have folks buying it is truely mindboggling. Most here are about the same age, have we learned nothing? shortage my behind.

Of course we can do far more to conserve. Been doing some things and saying as much for 25 years. Funny the same folks who now claim we need to conserve are the first ones to waste, to promote irresponsible growth and the right of Duke or Enron to manipulate markets...go figure and disconnect to the maximum.

-- (doc_paulie@hotmail.com), February 16, 2001.


To hear the SHORTAGE crap again and have folks buying it is truely mindboggling. Most here are about the same age, have we learned nothing? shortage my behind.

Doc, the simple fact is that California does consume more electricity than it produces, and that the state's "deregulation" plan has not allow long-term negotiated contracts, but instead pushed the power companies to buy on the day-to-day spot market.

http://dailynews.yahoo.com/h/ap/20010210/us/power_gridlock_1.html

Quick Fix Sought for Calif. Power

California generates about 75 percent of the electricity it uses, relying on imports from the Southwest and Northwest for the rest.

Officials acknowledge that California has not added enough power plants to accommodate the roughly 2 percent annual growth in its demand for electricity.

A large part of those imports do happen to come from Texas, the state Bush is from. What I've got to differ with you on is the idea that Texas somehow manufactured this shortage. The tight supplies--the shortage--is real. Most of the Western states are experiencing tight supplies. Hydroelectric generation in the Northwest is down due to recent weather there. And California buys 25% of its power from out of state.

You're close to sounding like a conspiracy theorist, doc. There's no need to become one of those folks. What's more plausible to consider is the possibility of Bush not stepping in soon enough this summer if and when rotating blackouts cause gasoline shortages for California and Nevada, or if and when it begins to have an impact on the national economy.

In other words, Bush's close ties to Texas energy suppliers might result in the inaction of Bush if in fact a time came when some kind intervention on Bush's part became crucial.

I'm no Meme, doc. I'm communicating with you in the here and now as you read these words.

-- Aware and (in@the.moment), February 16, 2001.


http://hv.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=004d1R

FERC says it won't make generators sell to California

Washington, Feb. 15 (Bloomberg) — Electricity generators can refuse to sell power to California utilities unable to assure they can pay, a government agency ruled, even as a shortage of energy in the state threatens blackouts and bankruptcies.

Duke Energy Corp., Reliant Energy Inc. and other generators have balked at being forced by the state's power network to sell to PG&E Corp. and Southern California Edison, which racked up $12 billion in debt buying power at higher prices than they could sell it.

The Federal Energy Regulatory Commission rejected a request by the California Independent System Operator to waive a requirement that utilities prove their creditworthiness. The ISO was concerned that skyrocketing electricity prices would compound a shortage of power.

"It's clear from the order that the FERC expects those who provide electricity to the market to be paid for the electricity supplied," said Bryant Kinney, a spokesman for Duke Energy.

The cost of electricity in California has soared over the last year as natural gas prices surged and a drought reduced hydroelectric power from the Northwest. The state's 1996 deregulation law caps utility rates, squeezing the utilities since they can't pass on their rising costs. The situation has brought the utilities to the verge of bankruptcy.

In yesterday's order, the FERC sided with the generators, saying that relaxing previously agreed-upon credit requirements for the utilities would only create more instability in the California power market.

"We are concerned that a lowering of the financial creditworthiness standard, without some assurance of payment for third-party sales, would further increase prices paid by consumers," the commission said in its written ruling. "This is because ... the tariff revisions likely would increase the risk premium added to the price of power due to the exposure of non-payment."

Duke sued California's power-grid manager and its Department of Water Resources earlier this week, saying they are violating their own rules by delivering power to insolvent utilities. California recently passed a law saying that the Department of Water Resources would purchase the state's power, since the utilities' bonds were reduced to near "junk" status.

Kinney, the Duke spokesman, refused to speculate on what the FERC ruling may mean for the company's lawsuit against Cal-ISO.

"We're going to take it and review it and see what it means to us," he said.

Yesterday, British Columbia's Hydro & Power Authority, which has been selling the state as much as 1,200 megawatts, said supplies may end at any moment. Last week California missed making a partial payment to BC Hydro of the $300 million it owes them, according to ISO spokeswoman Lisa Szot.

http://www.bakersfield.com/oil/Story/308959p-307358c.html

-- Right (here@right.now), February 16, 2001.


Maybe reading this will help explain why new power plants were not built in California. Also, there was renewable electricity sources that were lobbied against.

I know, I know it is a cut and paste, but the information is important when all of it is taken together. It isn't Bush bashing, it tells how companies charge consumers for bailouts tand make big profits but when it comes to decreased profit, the money they make has gone to the parent company has been spent on other things and the consumer ends up paying for yet another bail out. This isn't just California it is happening to, there are many states in the middle of becomming deregulated. Also power is not being generated so prices increase. They are not competing, they are working together to make prices highter.

Critical Mass Energy and Environment Program

January 2001

Introduction

If the purpose of deregulation is really to improve the quality of people’s lives by lowering the cost of a critical commodity, it is obviously failing miserably—as demonstrated in California. To understand what has happened, we must begin with the past.

Prior to "deregulation," electricity was supplied by regional monopolies that owned both the power plants and the transmission lines for the distribution of power. The California legislature set the rate of return of profit for the utilities, and the state Public Utilities Commission planned for future power needs and helped insure that rate increases were fair and based on the "cost of service." While this system was often abused because of the enormous political power of the electric utilities and their ability to influence policymakers, it did keep in check the profiteering that we are now witnessing in California.

By the mid-1990s, large industrial consumers sought to escape the high costs of power in some parts of the country, like California, that came as a result of building expensive nuclear power plants. At the same time, independent power producers like Enron were actively lobbying to be able to sell power to these big consumers. Political pressure for deregulation mounted because the breakup of the $300 billion dollar utility industry meant huge amounts of money could be made. Enron, an important campaign contributor to the Republican Party and to President Bush, lobbied for deregulation not only in California, but at state legislatures across the nation and in Congress.

Despite warnings from consumer groups, deregulation has been heartily embraced by both political parties, and under the Clinton administration, the U.S. Department of Energy wrote its own federal deregulation bill that it promoted unsuccessfully.

In California, the utilities, at first, were skeptical of deregulation, because of the high cost of power from their nuclear plants. However, they began to hunger for the profits that could be made in a speculative market. They lobbied heavily for deregulation because they knew that with their enormous political clout in the state legislature, they could shape the outcome of deregulation.

The legislation, written primarily by California’s utilities, was extremely complex, a vast program for a vast state. It was wrangled over in a series of rapid-fire hearings, and rammed through the legislature at the last minute in a process that took only three weeks. It was unanimously passed and signed into law by Governor Pete Wilson in the fall of 1996.

The legislation, written and supported by utilities, privatized their profit and socialized their risks. The most glaring example of this was the $28 billion dollar consumer-funded bailout for their so-called "stranded costs." Stranded costs are essentially mortgage payments that the utilities make to cover their purchase of expensive boondoggle nuclear power plants. The utilities argued that the bailout was necessary because they would now be assuming marketplace risk, and the uncertainty of their future profits made the paying off of debts they incurred under regulation too burdensome. To accomplish this bailout, rates were artificially frozen for 4 years, at what was then 50% above the national average cost of electricity. To date, ratepayers have bailed out the utilities for approximately $20 billion dollars through added costs to their electric bills.

In 1998, a coalition of consumer groups, Californians Against Utility Taxes, sponsored an initiative, Proposition 9, which would have invalidated portions of the 1996 deregulation bill, and prevented the utility bailout. The proposition would have required the utilities and their shareholders, not ratepayers, to bear the burden of the $28 billion bailout. According to energy analysts at the California Energy Commission, if Proposition 9 had passed, residential power customers would have seen their energy costs "fall between 18 to 32 percent." California’s utilities spent more than $30 million defeating Proposition 9, compared to the $1 million spent by consumer advocates.

The legislation not only provided them with a bailout, but it enabled them to go on an international spending spree in which they purchased power plants. It also provided them with capital they used to invest in other industries that they had been prohibited from entering under the regulated monopoly system. California’s utilities have invested in telecommunications and other types of high-growth services that they plan to sell in conjunction with their sale of electricity. Between the bailout and their forays into new industries, Wall Street applauded their moves because of their increased earnings potential.

Also, the legislation provided incentives for California’s utilities to sell their power plants to unregulated companies. They sold most of their fossil fuel plants at above the book value, providing them with a significant profit. However, they retained their nuclear and hydro-power generation, along with a small amount of fossil-fuel plants.

Additionally, the deregulation bill transferred pricing of California’s electricity generation to the Federal Energy Regulatory Commission by creating the Power Exchange, a private nonprofit organization that would operate the auction for wholesale power.

Most of the corporations that bought the California utilities’ power plants are from out-of-state--such as Virginia-based AES, North Carolina-based Duke, and Houston-based Dynegy and Reliant. Eleven companies, not all of which own power plants in California, sell electricity into the Power Exchange, where electricity is bought and sold several times (in paper transactions) before it is actually delivered to consumers. Another new privately run entity, the Independent System Operator (CAISO), acts as a traffic cop, directing electricity to where it was needed.

Myth #1: Deregulation does not work because California did not deregulate enough.

Advocates for deregulation say that if the rate freeze was removed and consumers paid for the real cost of electricity through a free market, there would not be a problem. But they fail to mention that over the past few months, the cost of wholesale electricity has at times been almost 4,000 percent higher than before deregulation because of the speculative nature of the electricity market. If all the costs were passed on to consumers, the average residential monthly consumer, who paid approximately $55 a month before deregulation, would have been paid approximately $600 a month when prices spiked in California this winter.

Second, the utilities agreed to assume a risk under deregulation, in return for the bailout and rate freeze. However, now that their plans have soured, they want to renege on the deal that they lobbied for in 1996. The retail rate "freeze" was designed by and for the state’s electric utilities, as a way to subsidize them for their bad business decisions of the past, such as nuclear power plants.

Until the spring of 2000, the utilities greatly benefited from the artificially high rates that were "frozen" in 1996 at 50% above the national average for electricity. These outrageously high rates included: 1) reimbursement for their cost-of-service (all of the expenses associated with producing power); 2) approximately an 11.75% profit margin; and 3) the $20 billion dollar bailout for utilities’ bad investments of the past. The outrageous utility bailout is listed as a "Competitive Transition Charge" (CTC) on every Californians’ electric bill.

The Utility Reform Network (TURN), a consumer advocacy organization in California, explains the bailout and rate freeze:

This opportunity [the rate freeze], however, included the explicit risk that some costs might not be collected by the end of the rate freeze. With the advent of higher-than-expected power prices in recent months, these utilities now argue that they never took a risk for the costs of power under the rate freeze and therefore should be compensated for money spent to buy power for its customers.

To make matters even worse, the utilities overestimate the cost of electricity that they claim to have "under collected" from consumers in their frozen rates. As a result of the price spikes that began in 2000, the utilities are asserting that consumers have to pick up the exorbitant cost of wholesale electricity. The utilities claim to be "owed," approximately $12 billion dollars.

In fact, this number is wildly exaggerated, because the utilities did not sell all of their power generation (they retained nuclear plants, hydra-electric facilities, and a small amount of fossil generation). Under deregulation, the electricity from all utility owned or contracted generation is resold into the Power Exchange. During periods of high energy prices, the net revenues associated with this generation can be substantial. But, instead of offsetting the costs of purchasing power for customers, under the current rules, these utility owned units provide no direct benefit to rate payers in the form of lower energy procurement prices.

For example, if it costs PG&E approximately 1.4 cents per kilowatt hour to generate hydro-electricity and they sell this power at the Power Exchange for approximately .40 cents per kilowatt hour, they make an huge profit. This profit should be subtracted from the amount that the utilities estimate they have been overcharged for wholesale power. But, the utilities have not subtracted in their estimates of how they have been overcharged, their own substantial profits in wholesale market, which is roughly estimated at $6 billion dollars. This means that the $12 billion dollar figure that they claim to have over-paid in the wholesale market is wildly inflated by at least $6 billion.

Because of the profiteering on electricity trading at the Power Exchange, the city of San Francisco initiated a lawsuit on January 18, 2001, against a number of companies for unfair business practices. The companies being sued include Dynegy Power Marketing; Enron Power Marketing, Inc.; PG&E Energy Trading Holding Corporation; Reliant Energy Services; Sempra Energy Trading Corporation (owner of San Diego Gas and Electric), Southern Company Energy Marketing, Duke Energy Trading and Marketing, NRG Energy, Inc. and Morgan Stanley Capital Group, Inc.

The California Public Utilities Commission comments that the pricing patterns in the Power Exchange’s "day ahead" and "day of" markets raise questions about the bidding behavior of market participants that cannot be coincidental.

California is suffering today because of no regulation – not because of over-regulation.

Myth #2: Deregulation will lower costs for consumers.

Deregulation has been sold to the public as a way to lower prices. Unfortunately, the inverse is often true, with deregulation resulting in higher prices over time. When deregulation legislation sailed through the California legislature with unanimous bipartisan support in 1996, proponents claimed that consumers would see at least a 20 percent reduction in their electric rates eventually. Now, as wholesale prices have skyrocketed since last year, proponents argue that consumer rates will have to increase to encourage more competition. Long-term contracts are being promoted as the anecdote for the crisis. But, the price being quoted for electricity under these contracts is at least three times more expensive than under regulation. What happened to lower rates under deregulation?

The answer is that California’s power producers have no restrictions on the prices they can charge for electricity, and regulators no longer set minimum energy reserve requirements to prevent power shortages. Advocates of deregulation said that prices and reserves would be set at optimum levels by the free market. But the opposite has been true. Power marketers restrict supplies by reducing the amount of electricity that is produced, creating shortages and price spikes (see Myth 4). Predictably, gaming the system has meant skyrocketing profits for power marketers in California.

An analysis of the effects on consumer prices in another deregulated energy industry—natural gas—is a good indication of what will happen to consumer’s electric bills if they are left to the vagaries of a deregulated market. Since the natural gas industry was deregulated a decade

ago, wellhead, or wholesale, costs have actually fallen. But the price at which natural gas is sold to residential consumers has skyrocketed. In 1984, just prior to complete deregulation, residential prices for natural gas were 44 percent above the wellhead price. By 1987, it was 110 percent above. By 1999, it was 181 percent above. At the same time, prices to larger, industrial consumers rose, but not as much as for residential consumers. In 1984, industrial prices were 28 percent above the wholesale price of electricity. In 1987, they were 39 percent of the wellhead price. By 1999, it was 42 percent of the wholesale price. This price discrimination indicates a noncompetitive market.

Even with high natural gas prices—which according to economic theory causes sellers to increase supplies—reserves are low and there are indications that some type of market manipulation may be occurring. It seems that we have our own natural gas cartel operating in the U.S., which behaves like OPEC. With government regulators no longer protecting consumers and defining the rules of the road, control has been ceded to a handful of energy companies that in many cases are also the business of selling electricity in places like California.

At the very least, if the market is not being manipulated, years of experience show that the natural gas market is failing for consumers. After 15 years of higher prices, it is time to reexamine natural gas deregulation.

Meanwhile, we have a very different example set by publicly owned electric power systems. While energy companies defend their high prices, California’s 30 communities with municipally owned and controlled power offer the same electricity at lower prices. The City of Los Angeles’ Department of Water and Power charges 20 to 25 percent less than comparable privately run utilities elsewhere in the state.

Myth #3: Prices for electricity are being driven up because the demand for electricity is increasing.

Planning for new power plants is based on the need for electricity at the time of year that maximum usage of power occurs—the time of peak demand. Indeed, California’s Independent System Operator (CAISO), the traffic cop for the transmission of electricity under the deregulated market, has records showing that the state’s peak demand for electricity in 2000 occurred on July 12 and was approximately 45,600 megawatts. (For comparison, a large nuclear power plant is approximately 2000 megawatts.) California uses the most electricity in the summer, when air conditioners run.

CAISO uses this information about demand to find out how much energy must be produced by various plants to meet California’s energy needs. The agency records the highest amounts of demand by hour within the state of California. The data shows that while demand did soar in May, in four out of the past six months--July, August, October and December--California saw a lower peak demand in 2000 than during the same months in 1999.

Overall, according to the California Energy Commission and confirmed by California Public Utilities Commission President, Loretta Lynch, the average amount of electricity used throughout the day, grows at about 2% a year. This does not mean that peak demand is growing; it does mean that consumers use more power at midnight because they are using their computers.

In fact, recently, there have been blackouts when demand was less than 30,000 megawatts, approximately 15,600 megawatts less demand than the peak amount of electricity needed in California in the summer. Obviously, it is supplies of electricity being held back, not demand that is causing the problems with deregulation

Myth #4: The problems are being caused because there is not enough power to supply California.

So, why are suppliers short? Because under deregulation, power producers have no incentive to run plants at full capacity. As noted above, California has 55,500 megawatts of power generating capacity and 4,500 megawatts of power on contract. Following is a breakdown of plant ownership:

Of this power, the Independent System Operator has access to approximately 45,000 megawatts to provide electricity for the state. But large numbers of power plants are not running at full capacity or are down for unscheduled maintenance, keeping supplies short.

The tighter the supply, the more prices rise. As much as 13,000 MW of capacity was off-line in January for undisclosed reasons. According to The Wall Street Journal, on August 2000, 461% percent more capacity was off-line than a year earlier.

Because details about why these plants are off-line is confidential, the public is literally left in the dark. According to CAISO, many suppliers are not even complying with the requirement to turn in an annual plan for when they will have plants off-line for maintenance, and there are no penalties for this lack of cooperation. Regardless of whether one suspects that power producers are intentionally taking capacity off-line to hike prices, these statistics illustrate that under deregulation, the public has little control over pricing and reliability.

The fact is that today, the state of California has access to more capacity than the 45,000 MW of summertime peak demand—the maximum amount used during the highest usage time of year.

California has 55,000 megawatts of in-state electricity generating capacity through about 1,000 power plants. In addition, the state is able to import about 4,500 megawatts of electricity, which is under existing long term contracts. These thousands of megawatts of capacity could easily meet demand if wholesaler suppliers were not manipulating the system. The situation would be even better if energy efficiency strategies were maximized. New plants are not needed; instead, stricter scrutiny of existing plant operations is needed. Even so, many new plants are already under construction, which will even further increase the amount of electricity that is available.

Myth # 5: California’s environmental laws are preventing new power plants from being built in the state.

It is untrue that California’s environmental laws have prevented new plants from being built and are responsible for the current crisis. As noted earlier, there is enough existing capacity tied into the state’s grid to meet even summertime peak demand. And while the state’s sensible environmental laws get the blame for the lack of new construction, it is important to note that California’s utilities did not want to make investments in new power plants. The state’s utilities blocked decisions by the CPUC to build new capacity because under deregulation, the utilities realized they would have assumed the economic risk for bad decisions—rather than consumers— who paid for past mistakes as part of rates.

Southern California Edison (SCE) even went so far as stopping the development of 1,500 MW of new renewable energy and cogeneration (the heat from industrial processes is used to generate electricity) projects. This more environmentally friendly electricity would have been available to help meet the current crisis, and would have cost of under 5.5 cents per kilowatt-hour. But, SCE’s Chief Executive Officer, John Bryson, in the mid-1990s petitioned the Federal Energy Regulatory Commission (FERC) to stop the construction of these projects.

Before deregulation, California had a planning process for building the infrastructure for the energy sources to meet demand. In 1993, this Biennial Resource Planning Update (BRPU) process set a price that was below 5.5 cents per kilowatt (a much lower price than the cost of power from long-term contracts today), and a bidding process was initiated. The cost of environmental damage was taken into consideration in the bidding process. The Public Utilities Commission accepted bids and planned to build 1,500 MW of new wind, geothermal and cogeneration plants. Bryson then started a petitioning process at FERC, which resulted in none of the generation being built because he did not want to risk investments in new capacity. FERC voted to not allow the California Utilities Commission to require the new projects. Today, California is suffering from the FERC's bad decision and Bryson's efforts to stop new renewable energy capacity from being build.

Even so some power plants were built, according to the agency that permits new power plants:

In the 1990s before the state's electricity generation industry was restructured, the California Energy Commission certified 12 new power plants. Of these, three were never built. Nine plants are now in operation producing 952 megawatts of generation…Since April 1999, the Energy Commission has approved nine major power plant projects with a combined generation capacity of 6,278 megawatts. Six power plants, with a generation capacity of 4,308 megawatts are now under construction, with 2,368 megawatts expected to be on-line by the end of the year 2001.

In addition, another 14 electricity generating projects, totaling 6,734 megawatts of generation and an estimated capital investment of more than $4.3 billion, are currently being considered for licensing by the Commission.

Although new power plants are under construction and in the planning process, the best way to address California’s energy needs is through energy efficiency measures and renewable energy projects. Building more centralized plants may be a way to obtaining higher profits for power producers, but it is a poor investment in light of the new technologies that are rapidly becoming available. For instance, the expanded use of distributed generation, where small amounts of generation (roof top solar power is an example) is located on a utility's distribution system for to help meet energy demand.

Energy efficiency is always the cheapest and best method of lowering the demand for electricity. It cuts energy use, saves consumers money, offers predictable financial requirements, and benefits the environment by reducing energy use. Examples include: the use of compact florescent bulbs--which last ten times longer than conventional ones and use one quarter of the energy; double-paned windows; and more efficient appliances and industrial production lines.

According to the Center for Renewable Energy and Sustainable Technology, higher energy efficiency standards for central air conditioners (over the course of its lifetime) would save as much electricity as more than 1.2 million Californians would use. And more efficient clothes washers would save the electricity consumed by more than 700,000 Californians.

Renewable energy projects should be built to replace old, dirty generation. Renewable energy projects can now be built at the same cost as conventional facilities. Today wind turbines show great promise, tomorrow, fuel cells are likely to change the face of energy production. Renewable energy offers dependable, even fixed-cost power that is particularly important in a state that is facing blackouts and price roller coasters. Renewable energy offers dependable, even fixed-cost power that is particularly important in a state that is facing blackouts and price roller coasters.

Myth #6: Deregulation is good for the environment.

While deregulation creates short-term incentives to gouge consumers by artificially ensuring low supplies of electricity, in the long run deregulation creates economic incentives for power suppliers to sell more electricity. As prices rise, suppliers push to build new plants in an attempt to maximize profit. At the same time, deregulation provides an incentive to keep cheap, dirty coal power plants running longer. The market forces driving deregulation will not shut down old plants and replace them with cleaner ones. Instead, the old plants will run, and new plants will be built as well, because deregulation encourages more energy use.

This situation means that nationally the likely environmental effects of deregulation will be sharply increasing emissions, particularly if existing coal-fueled power plants remain exempt from air pollution standards.

In addition, because a speculative electricity market is inherently volatile, and because some suppliers have an alarming amount of market power, a larger reserve margin of power is necessary. The independent power producers are using the uncertainty of the market to push for relaxing environmental regulations, to drill for natural gas in sensitive areas and to build more power plants and more transmission lines.

If utility deregulation continues on its current course, not only will air pollution increase and ecologically sensitive areas be degraded, but our global climate will be further threatened by more greenhouse gases.

Myth #7: California’s energy crisis is best resolved through state, not federal, actions (as stated by President Bush).

Unfortunately, the Clinton Administration promoted electricity deregulation relentlessly, and now the new Republican Administration is supporting the same reckless deregulation scheme that we are seeing unfold in California today.

The Bush administration argues that blame for the current crisis lies with the state: allow the utilities to pass their costs on to consumers and ease the state’s environmental standards to quickly build new power plants to increase supply.

The cause of California’s deregulation crisis is the result of the removal of any government oversight on producing and selling electricity. With government regulators no longer present to protect the public interest, power producers and marketers are charging outrageous prices for electricity, and the utilities then attempting to pass on the cost to consumers (see Myth 3).

While the Bush administration seems content to blame the state for the problems with deregulation and to claim that raising rates and building new power plants would solve everything, the federal government is sitting on the one action that will directly address today’s high prices. Under the authority of the Federal Energy Regulatory Commission (FERC), which is now chaired by Bush-appointee Curt L. Hebert, Jr., the federal government is the sole entity that can impose cost-based rates on these power producers. If the administration was willing to order power plant owners to sell their product at the cost-of-service (the cost of generating power) and a reasonable profit, California’s utilities could buy the electricity needed and the pressure to raise consumer’s electric rates would be removed. Meanwhile, the state could investigate the price-gouging and act thoughtfully in solving the problems caused by deregulation.



-- Cherri (jessam5@home.com), February 16, 2001.

But, Enron, Reliant, and the other power producers and power marketers operating in California heavily financed the Bush administration. Bush and his new energy secretary, Spencer Abraham, who lost his recent run for the Senate and who once advocated the abolition of DOE, received more than $2.5 million from energy interests during the campaign and for the inauguration events. The new power suppliers for California are making so much money from their profiteering that they will maintain pressure on the Bush Administration to keep the current system in place.

To date, the only federal action Bush has called for is to drill in the unique and pristine coastal area of Alaska’s National Arctic Wildlife Refuge to tap into a supply of oil that would amount to only a sixth month supply of oil and would take 10 years to bring to market. Furthermore, oil is rarely used for electric power generation today.

Myth #8: California’s three big utilities were forced, against their will, to sell their power plants.

As described in the introduction, California’s three big utilities lobbied intensely to pass the 1996 deregulation bill, which provided incentives for them to sell their power plants. Some nuclear and hydropower facilities were retained by the utilities. The California utilities believed that they would thrive from electric utility deregulation and become international energy companies.

The sale of the power plants, along with the infusion of consumer-funded subsidies, gave the two utilities accelerated depreciation, enabling them to build up cash on their parent companies’ balance sheets to finance the stock buyback plans and pour investments into Mission Energy, the National Energy Group and other unregulated divisions. According to a report released by TURN in October 2000, the generation owned or contracted by Pacific Gas and Electric (PG&E) and Southern California Edison (SCE) produced large profits between May and August of 2000, amounting to $2.7 billion. Because the power is credited to stranded costs, the average monthly collection of stranded costs was accelerated by 79% for PG&E and 56% for SCE. Accelerated depreciation has provided large amounts of cash for the utilities.

However, now that they have been beat at their own game by bigger and meaner companies like Enron, and they are crawling back to the legislature and begging for another consumer bailout.

Myth #9: California’s utilities are close to bankruptcy and need to be bailed out.

California’s two major utilities, Southern California Edison (SCE) and Pacific Gas & Electric, claim to have racked up such significant losses under deregulation that they are threatening to file for bankruptcy. In 1996, when the promise of huge profits loomed large they agreed to assume some risk, now that the market has failed they are demanding that the state provide direct assistance. or else they will no longer be able to afford to supply their customers with electricity.

But their parent companies, using the money they made from selling their power plants and from the bailout have spent more than $22 billion on power plants, stock buybacks and other purchases that far exceed their alleged $12 billion debt from California operations. Edison International and PG&E have done this both through those two companies and through affiliated companies, Mission Energy (a subsidiary of Edison International) and National Energy Group (a PG&E subsidiary).

Created in 1990, Mission Energy’s revenues and profits didn’t take off until 1999, when expensive investments began to pay off. A recent Public Citizen analysis showed that Mission Energy, along with a few other smaller Edison International subsidiaries, spent more than $10 billion on non-California investments since December 1998--more than double the SCE’s stated debt of $5 billion. In addition, Edison International has spent $2.35 billion on stock buyback programs since deregulation began. 

PG&E’s high-growth subsidiary, National Energy Group, hasn’t been as forthcoming, electing not to disclose the purchase price of many of its recent acquisitions. Information gleaned from several news reports reveals that since 1999, PG&E’s purchases outside California and the Pacific Northwest have totaled at least $9 billion. This far eclipses PG&E’s alleged $6.6 billion deficit from its California operations. PG&E spent more than $1 billion on its own stock buyback plans since the onset of deregulation.

Myth #10: Electricity deregulation is working in other states.

Electricity deregulation has passed (or been adopted by a regulatory process) in 23 states plus the District of Columbia. However, because of the situation in California, Utah has repealed its deregulation bill and New Mexico has delayed its the implementation of its deregulation legislation. Of the states that passed bills, only a handful of them have begun changing their energy supply systems. Some places, like Washington, D.C., negotiated long-term contracts at reasonable rates, which will put off by several years the disasters of a truly deregulated market. And in almost all states, deregulation is to be phased in over a period of years. To make the legislation politically viable, price caps, mandated rate reductions and other benefits that will be sunset were included.

Also, electric utilities across the country were given huge bailouts for their bad investments in nuclear power and other items as part of the deregulation deals in their states. These so-called "stranded-costs" were passed on to consumers. According to a report by the Safe Energy Communications Council, utilities in 11 of the states that have deregulated (California, Illinois, Massachusetts, Michigan, Montana, New Hampshire, New Jersey, New York, Pennsylvania, Ohio and Texas) are demanding or have already received more than $112 billion to bail out their failed investments.

States such as Massachusetts, where utilities were bailed out, have had no electricity suppliers willing to serve residential suppliers. The idea that there is competition in the market has become a joke. Power suppliers that sprang up to serve customers in New England, Pennsylvania and New Jersey are now "dumping" their customers back to the old utilities. The new suppliers simply cannot compete in the region's electricity markets.

Pennsylvania, which has been touted as a deregulation success, does not really have a deregulated market. The state's utilities went through a regulatory process to determine how much their bailout should be. The cost of the bailout was included in the price of electricity that each utility can charge. Each investor-owned utility has a regulated price of electricity; depending on how large a settlement it received for its "stranded cost" recovery. This is basically a regulated price for electricity, which depending on the utility, will be in place for as many as nine years.

This regulated price of electricity is keeping prices in check in Pennsylvania. It means that suppliers must keep their prices lower than the regulated price to be competitive. For instance, PECO Energy has a winter price or 5.57 cents per kilowatt-hour. But many of the utilities in the region retained ownership of their plants, so suppliers must buy electricity from the utilities that are still regulated. This has meant that many suppliers have gone out of business.

No matter where deregulation has occurred, problems are already arising. For the past two summers, blackouts have plagued residents and businesses in other deregulated markets where prices on the wholesale market have spiked, most notably in Chicago, New York City and northern New Jersey.

New York City is an instance in which consumers were subject to the vagaries of the market and prices skyrocketed because of the volatile, speculative market for electricity. New York used a regulatory process to deregulate. Consolidated Edison, which serves New York City, was allowed to pass all of its costs on to consumers. So when price spikes occurred, bills skyrocketed, raising rates 43% for residential consumers and 49% for commercial users. Obviously, passing on the cost of a speculative market for electricity will not make deregulation a success.

Additionally, deregulation is encouraging dozens of mergers and acquisitions in the electric industry. We have seen this type of consolidation in other industries, and it has meant higher prices and poorer service in most cases for consumers.

We’ve seen what mergers do to consumers when we look at the airline industry. The largest airlines have engaged in numerous mergers, reducing competitors at every turn. They are masters at price discrimination, forcing business travelers to pay fares several times higher than vacation travelers, who can plan for travel weeks or months in advance. They also use their ticketing computers to send price signals to each other in a game of collusion that keeps profits up. Major airlines maintain "fortress hubs" where they have a monopoly on air service, allowing them to set prices due to lack of competing airlines. Deregulation in the airline industry has also led to terrible service, which is now legendary.

Consolidation does not lead to competition, lower prices or better service. On the contrary, it allows a handful of companies to exert market power and prevent consumers from receiving good service at reasonable prices. But, unfortunately, utility analysts predict that only a handful of companies will survive deregulation, if it continues to be embraced, and that these same companies will sell any number of services. This concept, called convergence, will mean that consumers will be forced to use a single company to provide necessary services such as power, water, telecommunications and Internet access. Prices for all of these services will be "bundled" (included in a single price), which will leave little room for price comparison.

Policymakers should think seriously, and there should be a public debate, before deregulation reaches this level. The bottom line is that if deregulation doesn't help real Americans, we shouldn’t continue to pursue it.

Conclusion

Electricity is an absolute necessity that should not be a speculated product. Consumers have a right to affordable energy, produced in the most environmentally sustainable fashion possible. But, when treated as a speculative commodity, the cost and supply of electricity becomes uncertain. This situation invites price-gouging and profiteering, as we are witnessing today in California.

We must critically analyze the intentionally perpetuated myths by the proponents of deregulation, because it is clear that what many pro-deregulation politicians are saying just is not true. We need to carefully look at their assertions, or we will not only continue to bailout utilities, we will higher prices, less reliability, and a threatened environment. It is time to hold policymakers accountable for the mess they have created, and roll back dangerous electric utility deregulation schemes.

Sorry about the cut and paste and long post, but there is a lot of good information and explainations of the many things that have brought us to this point.

-- Cherri (jessam5@home.com), February 16, 2001.



The shortage claims are pure baloney. California has IN STATE 55,500 megawatts of power generating capacity and 4,500 megawatts of power on contract. PEAK loads(worst case)during the summer is 45,000. PEAKS are hit but infrequently(and NEVER in January-major clue there alone). I just checked the current use and it is about 20,000 megawatts.

Problem is the ridiculous deregulation scheme which encourages a few producers to hold-back supply(generate at minimal levels)and thus jack-up the price. The shortages, like almost all involving energy of all sorts are manufactured for profit. Here is a breakdown. Sorry the numbers say manipulation. If the problems were truly because they didn't build enough capacity,or because the SierraClub ladi dada da... the trend would be a nice upward move not a huge spike. Has demand spiked? no. Where is the evidence power costs TEN TIMES what it did 8 months earlier? Even with the suppliers increased costs from Natural Gas, where is the beef?

Has Natural Gas risen TEN TIMES from what it was in April2000 even? Try 5 times and is currently about TWICE what it was in April2000. How does this in any way translate to TEN TIMES? Doesn't even come close to explaining the situation. However I think holding to the "increased NG cost" crapola a bit thin to say the least. This is batted around simply because few know what in the hell they are talking about. (not that I am any expert but I bet I am miles ahead of most).

Yes planned outages, maintenance, etc have played a part. But nothing has caused this crisis more than the DEGREG scheme which all but forced participation in the online crapshoot of electricity producers and sellers. The Cal PX now has all but shutdown this auction joke as nobody will play no mo. California is doing their buying the old fashioned way,,,by agreement based in reality.

BTW, how much electricity does California import? try apx 17%. Now if the demand is apx 20,000-25 megawatts, and instate generation is apx 60,000, even taking 10,000 off for scheduled shutdowns, where is the beef? where is the SHORTAGE? You will also note California was importing more electricity back in 1990 than even now. That be back before an additional 6 million folks with computers and toasters called California home.

You ask just how much juice do them computer gizmos suck? Well this page is not real current but gives some clues...http://enews.lbl.gov/Science-Articles/Archive/net- energy-studies.html. Yet another MYTH bites the dust, THREE PERCENT boys and girls.

quotes from the AP story

California generates about 75 percent of the electricity it uses, relying on imports from the Southwest and Northwest for the rest

Misleading as it assumes California consumes at PEAK 24/7. Average is half this. Nice journalistic work ANDREW BRIDGES, Associated Press Writer(aka hack for Enron/Duke)

Officials acknowledge that California has not added enough power plants to accommodate the roughly 2 percent annual growth in its demand for electricity.

More misleading BULLSHIT. Here read what the folks actually involved say.....http://www.energy.ca.gov/electricity/commission_demand_forecast. html. BS comes in when you understand even at PEAK, and factoring in scheduled downtime(unusual during peak times)California is below their own instate generating capacity by 10,000 megawatts. They don't need a damn watt from outside technically. Course other factors come into play but to extrapolate this lack of building new plants into THE cause is a major stretch anyway you pull it. This is all of course talk about PEAK TIMES, not January, but June or July.

Story here is not the Electricity Crisis, it is in the PR campaign being waged. The spewing of baloney by a few profiteers who have bought and paid for an administration which now simply ignores the whole situation. The press? well which is easier to report? The wattage facts or the hip notion the whole mess is because of treehugging rockstars? it is Barbara Boxer! Willie Brown! Maxine Waters!

And for our Liberal friends you should know that Clinton would/and did basically what GW is doing on this problem. Only real difference is Clinton just put on a better face that he cared is all.

-- (doc_paulie@hotmail.com), February 16, 2001.


For current electrical use, within the last 10 minutes, go here.

Seems the link didn't work in the post above.

-- (
doc_paulie@hotmail.com), February 16, 2001.


tag off? geesh

Hey Phil, how bout a preview feature for this webfora software?

-- (doc_paulie@hotmail.com), February 16, 2001.


Many mistakes were made on the way to the current power crunch in California, including ones by the power companies. I don't believe trying to punish the companies at this point serves anyone's interest, though, except those whose #1 priority is having a scapegoat.

The credit rating of the California companies has deteriorated so badly that natural gas suppliers are afraid to sell gas to the two nearly bankrupt companies to distribute to their customers. The only thing that matters now is, will California run out of natural gas in the next few weeks? And, will the two days of rolling blackouts last month be just a small sample of what will happen in June when air- conditioning use causes power demand to surge?

California's best hope now is to repeal the part of 'deregulation' that prohibits long-term power contracts. Long-term contracts are one important step California can take to maximize reliabiliy of supplies at a much lower cost.

-- (Pragmatist@at.heart), February 16, 2001.


Then let Cali re-regulate if you're convinced that's the answer. Should be easy since they are only half de-regulated now (wholesale was de-regulated, not retail). In the meantime, it's tiring to hear all your fascist demands to have the government dictate what those BIG EEEEEEEEVIL corporations can charge for their products to customers who have no damn capability to pay.

We all know that only Internet start-ups employing less than twenty people [all wearing Birkenstocks and bringing their pets to work] are the only virtuous private capitalist orgnaizations, right Doc??!! Every other organization from Microsoft on down is just involved in a HUGE clandestine Aryan capitalist conspiracy.

Maybe you should get a room with the rest of the Y2K conspiracy crowd.

-- doc is a raving troskyite on welfare (moreinterpretation@ugly.com), February 16, 2001.



"Conclusion

Electricity is an absolute necessity that should not be a speculated product. Consumers have a right to affordable energy, produced in the most environmentally sustainable fashion possible."

Dems see everything as a 'right', to be paid for by someone else. If Cali has 'so much power' on their own, then why the hell are they paying those evil/greedy/conspiracy-laden out-of-state suppliers? Probably just another massive hidden conspiracy. Folks it's time to march for our rights to cheap cheap unlimited super-clean energy. We've got electric cars needing to be plugged in damn it!!!

-- moanin' and bitchin from Cali for my RIGHTS (moreinterpretation@ugly.com), February 16, 2001.


Want to know where the money goes? ...Duke Energy insiders unloading.

Hmmm lets see, the CEO, PRIORY RICHARD B ,has cashed in to the tune of 6.4million dollars just since November. This is in addition to the 1.7 mil he is paid to be top dog.

Nice chart! Nice gig! Are these "honest" earnings? define honest.

-- (doc_paulie@hotmail.com), February 16, 2001.


To the lunatic, all I can say is, it is hillarious watching you go ballistic! Keep trying, you're killing me. Go ahead defend these crooks.

-- (doc_paulie@hotmail.com), February 16, 2001.

"To the lunatic, all I can say is, it is hillarious watching you go ballistic! Keep trying, you're killing me. Go ahead defend these crooks."

Seems you are the one going ballistic over the fact that Cali is paying companies that you just loathe. Hmmmm, maybe we should have a law that dictates how much private companies can pay their executives. Yeah, that would be a good thing.

-- doc is a raving troskyite on welfare (moreinterpretation@ugly.com), February 16, 2001.


Hillarious reading this crap again.

Fucking SHEEP you people.

Enron, what else needs to be said?

-- Doc Paulie (doc_paulie@hotmail.com), January 17, 2002.


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