Electricity "Deregulation" in California

["Ken Hanly" <khanly@xxxxxxxxxxxxxxx>]

Here are a couple of more pieces on "dergegulation".. I put the term in
quotes because the deregulation is quite limited and as the conservative
articles rightly point out there is still plenty of regulation- such as
price caps. Regulations that increase the problems while attempting to solve
them. I can't understand why the state does not just let the utilitities go
bankrupt. Bankrupt properties are cheap arent they? Even  figuring in the
outrageous fees of bankruptcy lawyers :), the state could probably get
bargains..From the point of view of a strategy to take utilities into public
ownership cheaply the California deregulation has provided a golden
opportunity..one that no doubt will not be acted upon...
    CHeers, Ken Hanly

>>Dec 19, 2000
>
>California's Two Power Crises
>
>by Harvey Rosenfield and Doug Heller
>
>There are two power crises in California today. One is the electricity
>debacle, the other, a political power crisis.
>
>The electricity crisis is the result of the utility deregulation law
approved
>by state lawmakers four years ago. Greased with $9 million in utility
money,
>the Legislature eliminated utility price controls imposed in 1912. The
>deregulation law promised consumers competition and a "guaranteed" 20
percent
>rate reduction. Instead, like another fiasco pioneered by the
Legislature --
>the 1980s deregulation of savings and loans that ultimately cost Americans
>$300 billion -- deregulation of electricity has proved to be a catastrophic
>mistake.
>
>Freed from government oversight, the 11 independent companies that generate
>power for California are manipulating the supply of electricity to create
>shortages. Earlier this month, plants that generate 20 percent of
>California's electricity supply were mysteriously off-line. Others are
>selling their electricity to out-of-state purchasers. And some power firms
>are reselling their supplies of natural gas at higher margins, rather than
>using it to generate electricity.
>
>These machinations led officials to warn of blackouts, while wholesale
>electricity prices skyrocketed 3,900 percent and industry profits soared
600
>percent. The private utility companies, seeking yet another ratepayer
bailout
>of $20 billion, are threatening bankruptcy, a preposterous tactic that
>ignores the billions in subsidies and profits they have reaped under the
1996
>deregulation law.
>
>With the exception of San Diego, where deregulation kicked in last summer
>with devastating consequences, most Californians remain unaware of the
extent
>of the crisis. That will change when a Stage 3 electricity shortage occurs,
>and, with no warning, the electricity goes off. Street lights, traffic
>signals and crucial home medical devices will go down, seriously
jeopardizing
>the public's health and safety.
>
>After that will come the utility bills, which, if no action is taken and
the
>utility companies get their way, could reach $620 per month for the average
>ratepayer. As always, those with limited incomes will be hurt the worst,
but
>no one will be spared.
>
>To avert a human and economic disaster, the state must resume the
>responsibility of ensuring that our electricity is provided in a safe,
>reliable and affordable manner. California and federal authorities should
>obtain search warrants and subpoenas to enter the power plants to determine
>the true cause of the shortages.
>
>If necessary, the plants should be seized to protect the public health and
>safety. (At the present peak prices, the amount spent on electricity in
just
>eight days will eclipse the purchase price of all the privately-owned
plants
>in the state).
>
>To protect us in the future, deregulation must be repealed. The Legislature
>must restore the authority of state agencies to oversee rates and plan for
>our future energy needs, encouraging cost-effective technologies such as
>conservation and renewable resources.
>
>Private energy companies operating as a cartel have no incentive to
alleviate
>the shortages they are prospering from. Instead, California should move to
a
>nonprofit, publicly-owned system. Today, municipal utilities like Los
>Angeles' often-maligned Department of Water and Power are meeting their
>customers' needs at lower prices, without having to ask them to shut off
>their holiday lights.
>
>So far, however, elected officials have yet to endorse this, or any, plan.
>Beginning with Gov. Gray Davis, their inability to address the electricity
>crisis has produced an equally serious political power crisis.
>
>The electricity crisis defies the cautious approach that Davis prefers. If
he
>takes the bold actions that are required, he alienates Wall Street and the
>utility companies, among his biggest supporters. The utilities want him to
>rewrite the deregulation law to force ratepayers to retroactively pay the
>higher costs of electricity. But any compromise on this point means huge
>increases for ratepayers -- the monthly utility bill could rise 40 percent
or
>more -- and a revolt at the ballot box in 2002.
>
>So far, the governor has focused his efforts on getting a pro-industry
>federal agency to rein in the out-of-state energy companies. The likely
>result: long-term contracts negotiated at today's ridiculously high prices,
>locking in high utility bills for years.
>
>©2000 FTCR. All Rights Reserved. Read our Terms of Use and Privacy Policy.
>
>
>The Foundation for Taxpayer & Consumer Rights
>1750 Ocean Park Blvd. Ste 200
>Santa Monica, CA 90405
>Phone 310-392-0522
>Fax 310-392-8874
>ftcr@xxxxxxxxxxxxxxxxxxxx
>http://www.consumerwatchdog.org/
>
>NEWS RELEASE Foundation for Taxpayer and Consumer Rights (FTCR)
>Jan 03, 2001
>
>CONTACT: Doug Heller - 310-392-0522 x309
>
>Electricity Rate Hikes - FTCR statement
>
>Today, the single greatest public policy mistake in California history --
the
>deregulation of electricity -- has become one of its greatest scandals.
>Governor Gray Davis has capitulated to the three utility companies and
>ordered what will ultimately become a multi-billion dollar ratepayer
bailout.
>
>And make no mistake about it: this is just the first installment. Once the
>floodgates are opened by the Governor, there will be no limit. In
>rubber-stamping the Governor's rate increase after choreographing a public
>spectacle featuring an audit that is not even completed, the Governor's
>Public Utilities Commission (PUC) has betrayed the people of California and
>demonstrated it will not act independently of political pressure to protect
>the public in the future.
>
>Nor should the public be fooled by the ostensibly "modest" size in which
this
>multi-billion dollar bailout is cloaked -- 9%. The utility companies' phony
>threats of bankruptcy over the holidays, coupled with a Wall Street
ultimatum
>of a 20% increase, were intended to give Governor Davis political cover for
>such a "compromise." But the insatiable greed of the utilities, which
refuse
>to take any responsibility for this debacle, means that we can look forward
>to such rate increases on a regular basis until they are satisfied.
>
>The people of California never asked for deregulation, were never given a
>vote on it, and never got a penny of the promised savings from it. Instead,
>electricity deregulation will end up costing them at least $31 billion --
$20
>billion paid so far by ratepayers to utilities in the form of the
>"competition tax," or Bailout I; and another $11 billion (so far) to cover
>the utilities' reversal of fortune -- Bailout II. Taken together,
>deregulation will cost every man, woman and child in California roughly
$950.
>
>The depth of the betrayal of the public in this fiasco is difficult to
>comprehend. From the Legislature's unanimous approval of deregulation in
>1996, through the Governor's action today, the state's utility and energy
>companies have succeeded in forcing California consumers to bear all the
>risks of deregulation, while they reaped all the rewards.
>
>And the rewards have been huge. In addition to the billions of dollars paid
>to the utilities through Bailouts I, Edison (a $37 billion corporation) and
>PG&E (a $33 billion corporation) have realized consistent profits since the
>deregulation law went into effect. As recently as the third quarter of
2000,
>the utilities had record earnings.
>
>Edison International's profits (net income) for the 3rd quarter of 2000
($360
>million) and earnings per share ($1.10) were the highest in the history of
>the corporation. Mission Energy, the SCE affiliate which owns unregulated
>electric generation, reported historic third-quarter profits of $191
million.
>PG&E corporation's profits through the first three quarters of 2000 ($753
>million) are 40% higher than their profits for the same period last year.
>Operating revenues for the 3rd quarter of 2000 ($7.5 billion) were the
>highest in the history of the corporation and 20% greater than revenues
>received for the same quarter in 1999.
>
>Now, the utility executives claim their companies are broke, and using the
>blackmail of bankruptcy and lights going off, have won a 100% ratepayer
>bailout. But who will bail us out?
>
>Governor Gray Davis gave it all away. By taking bold action -- by using his
>executive powers to prosecute the manipulation of prices, to seize power
>plants improperly kept off-line; by asking immediate legislative approval
to
>impose a windfall profits tax and utilizing eminent domain -- or even
simply
>by threatening it, he could have backed down the energy cartel and lanced
the
>artificial price balloon they created. By ordering the state's three
>utilities to sell the power they generate with their remaining in-house
>plants to their core residential and small business customers, he could
have
>kept prices for the innocent victims of deregulation at very close to the
>present price. (50% to 70% of the electricity PG&E and Edison,
respectively,
>sell to their customers is generated by the utilities' own plants). By
>proposing a long-term plan for public ownership and control of the energy
>infrastructure, he could have restored an affordable, reliable energy
system
>in the future.
>
>Instead, the Governor has ordered ratepayers to become involuntary
investors
>in the utilities to keep them afloat, without even providing ratepayers
with
>the right to repayment or stock ownership that investors normally receive.
By
>his action today, the Governor has informed the energy industry that they
may
>continue to plunder the pocketbooks of the people of California, because he
>will make the people pick up the tab, whatever it is.
>
>Now, only the Legislature can immediately protect the public against the
>bailout -- by reversing the Governor and providing the necessary response
to
>protect the public health, safety and the economy. And it ought to, since
it
>was the Legislature, awash in money from utilities, energy companies and
>large industrial energy users, that passed the deregulation law by
unanimous
>vote four years ago.
>
>But the Legislature's record in dealing with scandals -- even those not of
>its own making -- offers reason for concern. In last year's insurance
>scandal, the Legislature did nothing to address the core problem --
insurance
>company claims handling abuses -- because the insurance lobby was able to
>contain the scandal to Quackenbush himself. The danger is that, when all is
>said and done, when the elected officials' chest-thumping is over, they
will
>be perfectly happy to do nothing about the energy crisis, content to leave
>Governor Davis holding the hand grenade when it explodes.
>
>We intend to do everything we can to urge the Legislature to protect
>ratepayers and adopt a comprehensive and practical plan to restore a
reliable
>and affordable electricity system in California. It will only be as a last
>resort -- in the event that our elected officials fail us -- that we will
>seek to place the matter before the voters in 2002. That was the outcome in
>1988, when the Legislature refused to defy the insurance lobby. The voters
>forced the insurance companies to issue $1.2 billion in refund checks and
>imposed massive regulation that has blocked over $14 billion in auto
>insurance rate increases. We ask all Californians to join us in this
>grassroots campaign -- the ratepayer revolt begins today.
>
>©2000 FTCR. All Rights Reserved. Read our Terms of Use and Privacy Policy.
>USA TODAY  Jan 03, 2001
>by Harvey Rosenfield and Douglas Heller (FTCR)
>
>Learn from California's Mistake
>
>The myth of electricity deregulation has met reality in California, and the
>result is a $40 billion debacle.
>
>Awash in energy-industry campaign contributions, California lawmakers freed
>the state's utility companies of price controls in 1996. Consumers were
>ordered to pay off the utilities' debts, after which competition was
supposed
>to kick in, guaranteeing a 20% rate cut by 2002.
>
>Deregulation proved a bonanza for the utilities. They sold some of their
>power plants and collected $ 19 billion in ratepayer subsidies. They used
the
>money to purchase plants in other countries, reward their executives with
>huge pay raises, buy back stock and increase dividends. Profits reached
>record levels this year.
>
>Envious, the handful of unregulated companies that control nearly half of
the
>state's electricity generation decided to cash in, too. This cartel began
to
>withhold power, causing shortages that boosted the wholesale price of
>electricity that utility companies must buy by 3,900%. But, ironically,
>because of the way they wrote the deregulation law, the utilities are
>forbidden to pass the higher costs on to most consumers until 2002.
>
>Now the companies want to rewrite the law. When public officials resisted
the
>utilities' demands for immediate rate hikes, the utilities threatened
>blackouts and bankruptcy. When that economic extortion failed, Wall Street
>issued an ultimatum: Order a 20% rate hike within 48 hours, as a first
>installment of an $11 billion ratepayer bailout, or Wall Street would
itself
>force the utilities into bankruptcy.
>
>California has learned the hard way that electricity is too vital to be
left
>in the hands of unregulated corporations whose sole interest is maximizing
>profits. Facing a ratepayer revolt, state officials have re-imposed
>regulation. To make electricity reliable and affordable once more, they are
>considering establishing a non-profit, publicly owned power system for the
>state. But, in the meantime, the deregulation disaster could end up costing
>each Californian $ 12,500.
>
>Meanwhile, elsewhere in the nation, corporate-funded ideologues and
academics
>continue to promote electricity deregulation, much as they promoted
loosening
>controls on savings and loans in the 1980s.
>
>Whenever you hear the word "deregulation," hold onto your wallets: Some
>industry is about to pick your pocket.
>
>©2000 FTCR. All Rights Reserved. Read our Terms of Use and Privacy Policy.
>
>
>NEWS RELEASE
>Dec 21, 2000
>
>CONTACT: Doug Heller - 310-392-0522 x309 cell: 310-480-4170
>
>SHOWDOWN: Utilities, Wall Street v. People of California
>
>
>Public Process Replaces Backroom Dealmaking:Consumer Group Says Audits of
>Edison International, PG&E Corp. Must Be Independent
>
>San Francisco -- As Wall Street firms and California utilities joined to
>pressure California into a ratepayer bailout, the process for solving the
>state's energy crisis has moved into the public forum of the California
>Public Utilities Commission (PUC) and the Legislature. According to today's
>ruling, the PUC will inspect the financial books of Edison and PG&E to
>determine the veracity of claims that the companies are on the verge of
>bankruptcy.
>
>Today's CPUC order delays the possibility of rate hikes until its January
4th
>meeting. FTCR, which has criticized the Governor for negotiating a bailout
of
>the utilities in private meetings in recent days, contends that there is no
>justification for any electricity rate increase. FTCR strongly disagrees
with
>the PUC finding that retail rates must rise.
>
>"The utility companies and their Wall Street allies are playing chicken
with
>our economy and the reliability of our electricity system. We cannot be
held
>hostage by their demand for a ratepayer bailout," said Doug Heller,
consumer
>advocate with the Foundation for Taxpayer and Consumer Rights (FTCR). "The
>movement toward a public process is an encouraging sign, but Governor Davis
>must be firm and hold the energy industry responsible for the deregulation
>fiasco rather than the ratepayers."
>
>Audits Must Be Independent; Ratepayer Representatives Must Be Allowed to
>Participate
>
>Consumer advocates warned that, while a true financial assessment of the
>companies is essential, there is concern about the independence of any of
the
>auditors that will likely be hired by the Governor. Edison International
and
>PG&E have combined assets approximately $71 billion, which means that they
>are major clients of virtually all of the Big Five auditors. Consumer
groups
>will seek to monitor the audits.
>
>"We are skeptical of the independence and integrity of these audits,
>especially given the ti