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Rolling power blackouts and the threat of more to come are making this a nightmare winter for California, and it’s a nightmare that could come to you. California’s economy is the sixth largest in the world, and as power cuts slow it down, the national economy may slow with it. President Bush was asked if the federal government could help, and from his answer, it’s clear that won’t be anytime soon.

President GEORGE W. BUSH: I have repeatedly said that the crisis has occurred because of faulty law in California. Californians need to address the law, having folks analyze exactly where the federal government can help.

MATTHEWS: Those laws deregulating California’s power industry were passed by the Legislature in 1995 when the Golden State’s economy was a third smaller and needed 25 percent less power than it does today. And the bill was popular. It passed with support from utilities, lawmakers, environmental groups and Republican Pete Wilson, then California’s governor. The new regulations forced California’s utilities to sell off their power plants and froze consumer rates at relatively high levels until 2002.

But deregulation also allowed companies supplying California’s electricity to charge the state’s utilities market rates. And with wholesale power costs rising from less than 5 cents per kilowatt hour a year ago to nearly 40 cents per kilowatt hour last December, California utilities are paying around eight times as much for electricity than they were, without being able to pass those costs on to consumers. The result: California utilities can’t pay their bills and on the verge–and they’re on the verge of bankruptcy.

Suppliers are sending power to California because Bill Richardson, Bill Clinton’s Energy secretary, ordered them to. And a lot of people are wondering why California hasn’t built a major new generating facility in the past 10 years, instead of weathering this crisis, and why 23 other states have enacted some form of deregulation.

For more on the California power problem and how the rest of the country could be affected, we’re joined by Senator Frank Murkowski, Republican of Alaska. He’s chairman of the Energy and Natural Resources Committee of the US Senate. And from Los Angeles, Harvey Rosenfeld–Rosenfield of the Foundation for Taxpayer & Consumer Rights. Thank you, gentlemen.

Senator Murkowski, how do we fix this problem now?

Senator FRANK MURKOWSKI (Republican, Alaska): Well, I think the California taxpayer, the consumer is going to have to step up to the plate, because you’ve got the two largest utilities in the state basically bankrupt. Now I’m sure the governor wants cheap rates in California, but, you know, this isn’t going to be at the expense of the rest of the country. I think what they’re doing now is kind of like rearranging the deck chairs for–for a better view. But I think unless they really bite the bullet, the ship’s going to sink anyway. You know, you’re going to end up with this thing going to a bankruptcy judge. The bankruptcy judge is going to dictate what the rate payer is going to pay, as we re-resurrect the utilities in–in–in California. It’s really serious business, no question about it…

MATTHEWS: Well, now we’ve got…

Sen. MURKOWSKI: …but it was predictable. It was predictable. When you put price controls in deregulation, you don’t have deregulation.

MATTHEWS: So you’re basically controlling the price going to the consumer, but you have deregulation of the sources. But the problem here is: How do you–if–if you raise the rates th–raise the rates that the utilities are allowed to charge right now, would that solve the problem?

Sen. MURKOWSKI: Well, no. You’ve got–you’ve got too much debt. There’s $ 11 billion worth of debt there that’s forced these utilities into bankruptcy. Who’s going to pick that up? Now the California consumer got the benefits of that power. And although that power was at a high price when it came in from wholesale sources out of state, nevertheless, they got the benefits of it vis-a-vis no power. Now that’s what we’re looking at in California.

The California consumer has yet to be really aff–feel the effect of the increased costs of power. They’ve been inconvenienced certainly by brown-outs and traffic lights and–and elevators, but, you know, San Diego is a different story. Now they’re having to pay the real cost of power, and it hurts. But when you have a–a–a growth area like California, and you don’t develop any significant power-generating facilities, and you depend on facilities from outside your state, and they begin to prosper and have the demands, and suddenly the price goes up, you’re stuck in this situation. And, you know, it’s–it’s just not going to stop there. We’re–we’re seeing Bonneville, which California depends a good deal on for power generated down…


Sen. MURKOWSKI: …their reservoir’s at the lowest point they have ever been.

MATTHEWS: Let’s–Senator…

Sen. MURKOWSKI: And what’s going to happen this summer, look out.

MATTHEWS: Senator, let’s hear from another point of view. Harvey Rosenfield is a consumer advocate, I think it’s fair to say. What do you think could be done to fix this problem, Harvey?

Mr. HARVEY ROSENFIELD (Foundation for Taxpayer & Consumer Rights): Well, I think the senator’s got the facts all wrong, unfortunately. What happened here was the utility companies went behind closed doors with the energy companies and the politicians in Sacramento four years ago. They negotiated a deregulation law, which, in fact, forced the residential and small-business ratepayers of the state to pay $ 19 billion at inflated prices. And for many years–for three and a half years, the u–it was a financial bonanza for the utility companies and the energy companies. The utilities reaped $ 19 billion. Their profits, their dividends, their executive compensation went up.

Then, all of a sudden, six months ago the wholesale energy suppliers decided to lift the wholesale price. The utility companies started to lose money, instead of make money, from the rate–residential ratepayers. And then, all of a sudden, once they started losing money, they say, ‘Oh, we’ve got to rewrite the law’ that they themselves wrote to get a ratepayer bailout or a taxpayer bailout from the public here in California. We’ve already paid too much.

The problem here, Chris, is deregulation and the way the utility companies and the energy companies have created phony shortages in order to manipulate the prices up, the profits up.

MATTHEWS: OK. We’ve got your point there.

Mr. ROSENFIELD: And now, in order to get a state bail-out, we’re talking blackouts.

MATTHEWS: OK, Harvey, tell me how you know–and I’m going to go back to the senator on this point–how do you know there was foul play here? How do you know there was market manipulation by the suppliers?

Mr. ROSENFIELD: Actually, don’t take it from me. The Federal Energy Regulatory Commission, the Public Utilities Commission, everybody sees how what you have here is–it’s like the OPEC cartel. You have a handful of companies that are in control of about half the state’s electricity supply, and they’re manipulating the prices. Here we are in the dead of winter with plenty of electricity capacity in the state, with slightly less consumption, slightly less demand than a year ago…


Mr. ROSENFIELD: …and we’re sitting here facing what we call blackout blackmail designed to get a taxpayer bail-out out of Sacramento.

MATTHEWS: OK. You’re saying basically that wintertime in California is not so energy costly as–as much as co–as summertime, right?

Mr. ROSENFIELD: No, there’s nothing to explain this other than the greed of the companies that they could ob–obtain under deregulation.

MATTHEWS: Well, one thing to explain it is what I said upfront, which is the California economy has grown by a third since the time these rates were set, but the energy u–usage has gone up by 25 percent. I know supply and demand. If demand goes up, the price is–is pressed.

Mr. ROSENFIELD: Chris, that’s not true. This–it–it’s gone up 1 percent or 2 percent a year. These numbers you’re getting from the utility propaganda machine nationwide, they’re–they’re afraid that when California’s deregulation law collapses, that’s going to kill the goose that laid the golden egg, which is enriching politicians and utility companies all over the country.

MATTHEWS: Well–well, common sense tells me, Harvey, that we have an entire high-tech industry based in Northern California which relies on electricity as its main means of energy and life. And it makes sense to me that there’d be a higher usage of energy.


MATTHEWS: Here’s President Bush. Here’s what he had to say. He has taken somewhat of a ‘told you so’ attitude about the California energy crisis. He told the Associated Press, quote, “A lot of the harshest critics of a balanced environmental policy are begin–are beginning to have rolling blackouts in their communities. I didn’t hear much talk–I don’t hear much talk now from the folks who were very critical of me during the course of the campaign when I said we shouldn’t breach the dams because of hy-hydroelectric power.”

He’s saying now–Senator Murkowski, you jump in here. The president’s now saying it was the environmentalists, the tree huggers, that caused us this problem.

Sen. MURKOWSKI: Well, I think that’s partially the–the case. In other words, California’s energy policy has pretty much been suggested that we don’t have to develop the energy sources in California. We can simply buy it from the outside. But to suggest that PG&E and Southern California Edison, by design, would put themselves in this position where, you know, they’re looking at $ 11 billion in debt–the state of California is talking about taking over their hydro dams–deliberately putting themselves in this financial bind, well, that’s–that’s unrealistic.

The problem has been when you cap retail rates to the consumer, you’re left with a situation where somebody has to pick up the actual increased costs. And when you’re bringing that power in from outside the state, you have to pay the going rate, or the feds can come in…


Sen. MURKOWSKI: …with FERC and–and put a cap on wholesale rates. Now if you do that, what does that do to competition, Harvey?

MATTHEWS: OK. Let me–let me ask you…

Mr. ROSENFIELD: There–there isn’t any competition.

Sen. MURKOWSKI: You’ve got a problem here that isn’t going to go away until the consumer…


Sen. MURKOWSKI: …pays the cost of electricity.

Mr. ROSENFIELD: Why is it that our…

MATTHEWS: Let me–let me–let me…

Sen. MURKOWSKI: And the American taxpayer is not going to pay it for them.

MATTHEWS: I’ve got to get–I’ve got to help our audience, the–the 49 states that don’t live in California and the people watching right now and the people in California, most importantly. Short term, long term, both gentlemen–Harvey first. Short term, long term, and–and how long is long term to fix this problem? First of all, short term, if you were governor out there or president, what would you do in the next couple of months to solve this problem right now? And in the long term, what policies would you set?

Mr. ROSENFIELD: Well, in the short term, if I were either the governor or the president, I’d tell these marauding energy companies that have created prices that are extortionary that if they don’t come to the table in three days and–and give California a fair price with a reasonable profit, I’m going to go out there and seize their plants. Because for the $ 800 million that state public officials just authorized to be thrown into the pockets of these energy companies, we could buy two power plants.

MATTHEWS: Right. OK. Long term, how would you build enough energy supply to meet the needs of California?

Mr. ROSENFIELD: Oh, we’ve got to…


Mr. ROSENFIELD: We’ve got to repeal deregulation…

Sen. MURKOWSKI: But you…

Mr. ROSENFIELD: …and go back to a system of government oversight and control…

MATTHEWS: OK. Governor…

Sen. MURKOWSKI: They don’t have deregulation.

Mr. ROSENFIELD: …based on public power. Deregulation’s dead.

Sen. MURKOWSKI: Never have had deregulation in California.

Mr. ROSENFIELD: That’s ridiculous.

MATTHEWS: Short term–Senator, short-term and then long-term solutions.

Sen. MURKOWSKI: Well, what–what you’re going to have to do immediately is come to grips with reality and guarantee that debt. And that’s going to take bonds from the state of California, the Legislature, the governor getting behind it. Then you’re going to have to encourage, in the long term, domestic production within the state of California. And, you know, there–there’s gas reserves. There’s companies that want to come in, because this is a supply and demand. You’ve got a shortage now of energy in the state of California, and you’re depending…

MATTHEWS: Does ANWR have the solution, Governor–Senator? You’re from Alaska.

Sen. MURKOWSKI: ANWR is–is a solution to–to some extent in the national energy security of our country because we’re so dependent on imports. We’re 56 percent dependent on imports now. Most of them are coming in from Saddam Hussein. We fought a war over there in 1992. We lost 147 lives.

MATTHEWS: OK. Thank you very much, Senator.

Sen. MURKOWSKI: You bet.

MATTHEWS: Senator Frank Murkowski of Alaska, home of ANWR, and Harvey Rosenfield, a consumer advocate.

Consumer Watchdog
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