Bailout Watch #24 – Mar 23, 2001

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BAILOUT WATCH: Keeping an eye on the energy industry and the politicians

Bailout Watch #24 – Mar 23, 2001

Killing the goose that laid the golden egg. While California’s rolling blackouts garner the nation’s attention, a momentous battle is being waged at this moment for the hearts and minds of the public. It’s over the future of electricity deregulation and the trillions of dollars that the energy industry will reap over the coming decade if deregulation plans go forward throughout the country. The battle is between a vast number of industry-funded spokespeople, academics, lobbyists, etc., and the handful of objective, non-partisan observers who believe that deregulation itself is responsible for the catastrophe that has hit California.

One wonders whether the short-term greed of the energy industry will prevail over a longer-term strategy. Because if they continue, the rolling blackouts will surely kill the goose that laid the golden egg — deregulation. Scenes of a darkened California will not play well anywhere else.

That’s why the energy and utility companies have sought to scapegoat everything else — supply, demand, and especially the deregulation law they wrote — for the disaster. You’ve heard the argument: California’s politicians freed wholesale rates from deregulation, but trying to protect consumers, capped retail rates. This single falsehood is repeated constantly — not just by the industry mouthpieces, but by politicians and journalists who should know better. The rate cap was the centerpiece of the legislation, sponsored by the industry, to allow the utilities to "recover" their "stranded assets" by freezing rates at a level 50% above the then-market price for four years. The rate freeze enriched the utilities by $20 billion. It was intended to screw ratepayers — and it did, for three and one-half years — until the wholesalers decided to get in on the bonanza last summer. And by the way, if we didn’t have the rate cap today — in an ironic twist on the legislated screw-job — consumers throughout California would be going broke paying San Diego 2000 prices for electricity!

Following the money. In the debate over California’s "crisis," academics have weighed in heavily — and nearly all to defend deregulation and espouse the usual industry shibboleths. For example, a January 13, 2001, New York Times oped by Paul L. Joskow, director of the Center for Energy and Environmental Policy Research (CEEPR) at MIT, concluded the problem is California’s excess demand and insufficient supply — fabrications we destroyed in our Monday analysis. "Deregulation is still the answer," says he. Apparently because of his academic affiliation, Joskow’s a frequent commentator on the California crisis. So we decided to log on to CEEPR’s web site at MIT. There we found a long list of utility, electricity, oil and gas companies listed as sponsors on its "CEEPR Associates" page, including Enron, Southern Company, the Electric Power Institute, and Reliant Energy. A rigorous, critical analysis of the inherent flaws in deregulation is conspicuously absent from the academics’ arguments. Big money from the energy industries raises serious questions about the integrity of their work.

Consumer Watchdog
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