Re: Paul D. on this year's Nobel--especially V. Smith

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Read my post:
http://csf.colorado.edu/forums/pkt/2000/msg02679.html

Read the report: HOAX: How Deregulation Let the Power Industry Steal  $71
Billion From California.

September, 1996 ? Greased with over $1.8 million in contributions from the
big three utility companies,

California lawmakers unanimously enact deregulation law. Legislation promises
competition, 20% decreases.

Gov. Pete Wilson signs the bill into law, saying that the landmark
legislation is a major step in our efforts to guarantee lower rates, provide
consumer choice and offer reliable service, so no one literally is left in
the dark. We've pulled the plug on another outdated monopoly and replaced it
with the promise of a new era
of competition.

1997-1998 ? Seeking favorable deals from state regulators, utilities sell
most of their electricity power plants to seven out of state energy companies
and oneCalifornia corporation (Calpine) for $3.2 billion. The companies that
bought the utility plants are: AES, Calpine Corp, Duke Energy,

Dynegy, NRG Energy, Reliant Energy, Southern Energy (now known as Mirant) and
Thermo Ecotek
(which later sold its plants to AES).

March, 1998 ? Competition is supposed to begin. California electricity
consumers may choose alternative energy providers. Per deregulation law,
retail electricity rates are frozen at historically high 1996 level, more
than 40% above national average through 2002. California’s three private
utilities ? Southern California Edison, Pacific Gas & Electric and San Diego
Gas & Electric ? begin surcharging ratepayers to pay off previous debts
incurred through mismanagement, poor regulation and cost overruns on nuclear
plants. This is the first utility bailout. Fewer than 3% of residential
customers leave their own utility companies.

November, 1998 ? California utility companies spend over $38 million to
defeat Proposition 9, initiative sponsored by The Foundation for Taxpayer and
Consumer Rights (FTCR) and other consumer groups to block bailout of
utilities’ bad debts under deregulation law.

July, 1999 ? San Diego Gas & Electric (SDG&E) customers pay off the
utility’s past debts. Statutory rate freeze is lifted for customers of
SDG&E, making it the first region with both wholesale and retail
deregulation. Customers’ electricity prices are no longer limited by state
law.

June, 2000 ?Instead of going down, as deregulation supporters promised,
wholesale electricity rates in California begin to rise exponentially ? as
much as 300%. SDG&E passes these higher prices for purchasing power through
to local customers, pursuant to the lifting of the rate freeze. An estimated
$800 million is
transferred out of the local economy.

August 30, 2000 ? State lawmakers, facing revolt at November elections, order
temporary rate rollback for SDG&E customers. The legislation, backed by
utility lobbyists, requires SDG&E customers to repay balance of higher energy
prices, with interest, beginning in 2003.

Fall, 2000 ? Deregulation’s rate freeze turns on its own sponsors. Forbidden
by the terms of the deregulation law they sponsored from raising retail rates
beyond the frozen surcharge level, the state’s larger utilities, Pacific Gas
& Electric (PG&E) and Southern California Edison, are now forced to cover the
excess cost of deregulated electricity out of their own pockets. They begin
to pressure the Public Utilities Commission (PUC) for permission to impose
rate increases on utility customers. The California Public Utilities
Commission rejects the request, asserting that the PUC does not have the
authority to rewrite the deregulation law mid-way through the transition to
deregulation.

November, 2000 ? Lobbyists for utilities demand that the California
Legislature order rate increases to bail out utilities from current losses.
FTCR warns Legislature against bailout.

December 7, 2000 ? The California grid operator announces the first Stage
Three “rolling blackout” alert, signaling that the state is close to
exhausting its electricity reserve capacity. At the same time, wholesale
power prices average as much $1,000 per megawatt-hour and spiking as high as
$1,500/MWh ? a 3000% increase over 1999 levels.

The state’s major utilities threaten imminent bankruptcy if they are not
allowed to increase rates by at least 30%.

December 15, 2000 ? FERC rejects price cap on wholesale electricity, even as
prices continue to soar above $1,000/MWh. December 2000-January 2001 ?
Unbeknownst to elected officials or the public, state employees of the
Department of Water Resources (DWR) begin to secretly take over some of the
utilities’ power procurement responsibilities, buying electricity from the
private power generators on the spot market.
Meanwhile, utilities threaten to default on payments they owe to wholesale
energy suppliers.

January 3, 2001 ? FTCR calls on Governor to seize, by eminent domain, power
plants improperly kept off-line in order to protect the reliability and
affordability of electricity.

January 4, 2001 ? PUC imposes its first residential rate hike of
approximately 10%, reversing its previous decisions that rejected such
increases on the grounds that they would be illegal. Governor Davis, who has
appointed a majority of PUC, promises there will be no more rate hikes.
Utilities say they require more
rate increases.

January 16, 2001 ? Edison defaults on $596 million worth of payments to power
companies and bondholders. Edison and PG&E announce they can no longer afford
to pay wholesale energy companies for electricity.
January 17 and 18, 2001 ? First rolling blackouts hit Northern California
since World War II. Panicked state lawmakers and the Governor draft emergency
legislation in which a state agency, DWR, would temporarily take over the
utilities’ duty to buy power for all their customers. FTCR testifies against
the measure, saying it represents a blank check for wholesale energy
companies.

The bill (SB 7x) passes the Senate on Thursday night, January 18, and is
signed by the Governor on Friday. Rolling blackouts end that day.

February 1, 2001 ? Legislature enacts new law (AB 1x), pursuant to which the
state takes over power procurement for the foreseeable future. The
legislation allows the state to purchase electricity on the spot market and
to sign long term contracts to meet the shortfall of electricity. Energy
supplies remain tight as
smaller, California based independent energy companies ? many of them
providers of renewable resources ? demand payment to continue their
operations.

March 19, 2001 ? Second set of rolling blackouts hit California, affecting
southern California for first time. Blackouts end after two days when public
officials move to ensure that the smaller power producers are paid by the
utilities. During this time, the Davis administration, having hired dozens of
energy traders and consultants, begins negotiating long-term power contracts
with energy wholesalers.

March 27, 2001 ? Public Utilities Commission enacts the second consumer rate
hike since January, bringing the year’s total rate increases to an average
of 40% ? the largest increase in California history. According to the PUC
decision, the rate increase is only to be used to cover the cost of buying
power on a “going forward
basis” and not to repay the debts incurred by the utilities as a result of
high wholesale prices in 2000.
Spring, 2001 ? Energy industry, backed by numerous academics who act as
consultants to energy companies, predicts energy shortages will lead to a
summer of repeated, lengthy and widespread blackouts. However, a report by
State Legislative Analyst’s Office concludes that the state should be able
to avoid blackouts during the summer of 2001. The Davis administration’s
energy team continues to sign energy contracts, but the governor refuses to
make the terms of the contracts public.

April 5, 2001 ? Concluding weeks of secret discussions with the state’s
utilities for a bailout of their deregulation losses, Governor Davis makes a
televised speech warning that unless the utilities are saved from bankruptcy,
California’s lights will go off. He announces support for rate increases.

The next day, PG&E files for Chapter 11 bankruptcy protection the next day,
claiming that negotiations between the Governor and that company were not
progressing.

April 9, 2001 ? Stunned by the PG&E bankruptcy, Davis announces a hastily
crafted “Memorandum of Understanding” with Edison in which ratepayers would
bail out Southern California Edison in exchange for the transfer of the
company’s transmission lines to the state.

April 25, 2001 ? FERC orders price mitigation plan for California electricity
market. The plan, which would become effective in late May, sets price
controls on power sold into the California market during energy emergencies.

May 2, 2001 ? Civil lawsuits for conspiracy, price-fixing filed against
wholesale energy companies.

May 7-8, 2001 ? The third round of blackouts occurs. Blackouts end after two
days when state agrees to finance its power purchases through the largest
municipal bond issuance in American history.

May 11, 2001 ? Enron executive Ken Lay hosts Los Angeles meeting with L.A.
Mayor Richard Riordan, Arnold Schwarzenegger, Michael Milken and others in an
effort to shore up support for deregulation in spite of growing catastrophe.

May 16, 2001 ? Bush Administration decrees national energy shortage and
announces results of secret task force: relaxation of environmental rules,
more oil drilling in preservation lands and more nuclear power plants.

June 13, 2001 ? California Attorney General announces investigation into
price increases.

June 18, 2001 ? Under pressure from state officials and US Senate, Federal
Energy Regulatory Commission (FERC) expands wholesale price controls that
were established by April 25 order.

July 2001 ? Governor Davis and Edison continue massive lobbying campaign for
utility bailout. Meanwhile, state officials uncover a series of potential
conflicts of interest among Governor’s staff and energy consultants hired by
the state. State energy buyers own stock in power companies; top state
negotiators have long-standing
business relationships with power companies.

August 2001 ? Governor Davis pushes for “DWR Rate Agreement,” which would
imperil public scrutiny over energy system. Consumer groups oppose agreement,
lobby for public oversight of state’s energy activities.

Late Summer 2001 ? FTCR establishes volunteer “War Room” in Sacramento
hotel and dozens of volunteers ? “Bailout Watchdogs” ? combat Edison’s and
Davis’s push for a bailout during last month of legislative session.
September 14, 2001 ? Campaign by Edison and Davis to enact bailout
legislation fails to pass California Senate.

October 2001 -- State has now spent approximately $10 billion of taxpayer
money from the General Fund to purchase electricity since January 19 from
wholesale energy companies ? nearly three times what the companies paid for
the power plants.

October 2, 2001 ? PUC announces secretly negotiated deal for $3-5 billion
ratepayer bailout of Edison. Consumer groups sue to overturn deal in federal
courts.

October 18, 2001 ? Governor Davis announces plan to renegotiate some of the
$43 billion in long term energy contracts with wholesale energy suppliers.
Many of the contracts contain unlawful provisions. More revelations that
state negotiators had conflicts of interest with energy companies.

December 2, 2001 ? After disclosure that previous financial statements were
massively overstated, and a precipitous decline in stock value, Enron
Corporation, a major player in the failed California energy market, files for
Chapter 11 bankruptcy protection. It is considered the largest bankruptcy
filing in U.S. history.

January 8, 2002 ? PUC announces ratepayer bailout plan as alternative to
PG&E’s corporate reorganization plan offered in bankruptcy court. The PUC
plan closely resembles the secret bailout agreement struck between the PUC
and Edison.

January 17, 2002 ? One year anniversary of rolling blackouts. After two rate
increases, six days of blackouts, $10 billion plus of taxpayer money spent,
two major corporate bankruptcies and one corporate bailout, electricity
deregulation still defended by special interests, politicians.

Henry C.K. Liu


Bob McKenzie wrote:

> Mr. Liu doesn't have it right.  First of all, the "public" wasn't sold
> anything nor did it "doubt" the claims of lower consumer prices.  It's
> easy enough to check the record - the dereg bill (AB 1966) was
> completely rewritten mostly behind closed doors and then sailed through
> each house on unanimous votes.  No one of significance noticed that
> half, not all, of the "market" was unhooked or noted what that
> would/could mean.  So Vernon Smith's argument - that deregulation
> should be total or complete - is not only valid but admirable in light
> of the many calls to re-regulate based on the false impression (and in
> part the on the deliberately misleading charge by some) that "dereg"
> didn't work.
>
> Bob McKenzie
>
> On Wednesday, Oct 16, 2002, at 17:29 US/Pacific, Henry C.K. Liu wrote:
>
> > Smith's article showed complete ignorance on the California energy
> > crisis. He
> > forgot the de-regulation was sold to Calipfornia by the promise of low
> > cost to
> > soncumers.  When the public doubted the claim, de-regulators agreed to
> > accept a
> > price ceiling.  The de-regulators forgot the same thing LTCM forgot,
> > that one
> > can lose money as fast as one can make a windfall in speculation, if
> > fraud is
> > not permitted.  His proposed solution is so simplistic that is
> > laughable.  By
> > making the poor do their laundray at 3 a.m. will bring price stability?
> >
> > paul davidson wrote:
> >
> >> .  If Gary Mongovi still believes that Nobel prize winner Vernon
> >> Smith is a
> >> gift horse for heterodox views he should read Vernon Smith's op-ed
> >> Wall
> >> Street Journal piece in today's (October 16) issue -- where Smith
> >> argues
> >> that all the electrical energy problems in California are the result
> >> of
> >> government regulation and if there was only a free market in
> >> electrical
> >> energy the optimal result would occur.
> >>
> >> With gifts like that who needs suicide bombers?
> >>
> >> Paul
> >