BAILOUT WATCH: Keeping an eye on the energy industry and the politicians
Bailout Watch #51 – Jun 06, 2001
Energy prices are down (at the moment). For months we have been calling on the Governor and other state leaders to aggressively pursue every avenue to reign in the power generators (see BWs #32, #23). The pressure on these pirates has mounted — windfall profits tax legislation (SB2x 1), a new eminent domain bill (AB2x 35), more aggressive talk from the Governor (see below) — and the drop in prices might indicate that the Texans have blinked and we’ve busted the cartel. With this place crawling with cops, the thieves may have picked up and left, headed for a new heist in New England, which is just a few years behind California in their deregulation lunacy and is, surprise, facing escalating power prices as a result.
Or this could be more power politics. Like a captured crook, the energy industry could simply be stashing the evidence. "Who, us? We’re not gouging anybody, just look at our prices." The SF Chronicle reports that some energy crisis observers think the sudden decrease in price is an industry effort to "take the heat off." They’ve manipulated the power supply before, using blackouts to "soften the legislature" (Wall Street’s words, not ours), so this could be manipulation in the other direction. Either way we have them on the defensive, which means that the Gov. and lawmakers must now fight more aggressively than ever to protect consumers over the long term. The generators have pillaged our state and if we do not set the new rules now, while they’re in retreat, they’ll come in for the kill as soon as we let our guard down.
Davis says he’ll seize the plants. According to an interview at the Bakersfield Californian web site, Gov. Davis said of the energy wholesalers, "if they [don’t] make every megawatt of power they produce… available to the state up and running this summer, plus charge us reasonable, non-outrageous prices, then I will have no choice but to seize their plants or sign a windfall profits tax." Amidst that tough talk, which might be working (see above), the Gov. hurried to confirm that his "parents were Republicans. I believe in markets. I generally don’t [believe in price caps]’; he asked for support on the Edison bailout, and most disappointingly, said he wanted to "get the state out of the power business, not get it deeper into the power business." So the Gov. plan is obviously to go back to deregulation — after he succeeds in regulating ratepayers into bailing out the utilities. What of the public power authority he signed into law? It’ll keep the market honest, he says.
Beware of the Long-Term Contracts. In late January, FTCR warned the Legislature not to make the mistake of pushing the state into long-term contracts with the power companies who we all knew would take advantage of our apparent desperation by signing us up for overpriced power for a decade. The politicians did the wrong thing and, it seems, turned a short-term crisis of greed into a ten year boom for the energy industry, as noted by Dow Jones a few weeks ago and in the Chronicle today. The reason Governor Davis has not made these long-term contracts public is probably because our collective jaw will drop when we realize how much we’ll be overpaying for power through 2011.
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517 Days Until November 5, 2002