BAILOUT WATCH: Keeping an eye on the energy industry and the politicians
Bailout Watch #53 – Jun 14, 2001
Grandpa, tell me the story of why our electric bills are so high. The energy crisis isn’t over. The long term energy contracts revealed by the LA Times lock in the energy crisis for another ten to twenty years. Despite the fact that power production plus a fair profit costs about $20-$35/Mwh for an average plant, the state negotiators have committed ratepayers to purchasing power for as much as $154/MwH for decades. Not only is the average price of the contracts (ranging from $60-$100/MwH per year) more expensive than power in previous years, but it is actually more expensive than power costs today on the "market," (see below). Unless these contracts are invalidated or abrogated by the state, we’ll spend the next decade or two watching ourselves get ripped off by the energy bandits who got the deal of the century "back in the ol’ days, round about the energy crisis of 2001, sonny."
Just compare the contracts to prices in previous years:
* On May 15, 2000 power sold for a weighted average price of $31.01/mwh and ranged that day from $10.35-$39.98
* On January 16, 2000 it sold for a weighted average price of $28.61/mwh
* August 15, 1999 : $22.41/mwh
It is the same power. It comes from the same plants. But for the next decade, at least, we are slated to pay three to five times more per megawatt-hour. For the ratepayer it means the recent 49% rate hikes are here to stay, with more to come.
The Big Blink? The fact that the robber barons will be picking our pockets for a generation (if these contracts hold up) does not mean that the energy companies aren’t running just a bit scared. Last week, the "market" price collapsed from around $300 to as low as $20, and not because the weather changed. The energy companies insist that "The market is working!" That’s their explanation. Gee, we think the suddenly reasonable pricing might have more to do with (1) US Justice Dept. broadening its investigation of natural gas manipulation by El Paso and (2) issuing subpoenas of wholesaler Williams for conspiring to limit plant construction in California, (3) Attorney General Lockyer convening a grand jury to issue indictments, (4) passage of windfall profits tax bill by Cal. Senate, (5) Gov. signing bill to create state public power agency, (5) threats of plant seizures, and (6) US Senate, in Dems’ hands, pushing wholesale price control legislation. You might call it Regulating by Threat.
No, the energy crisis is not over, and won’t be, until California regains control of its electricity supply. Like outlaws in the Wild West, the energy companies see the Sheriff coming, and they’re headin’ for the hills. They’ll lie low for awhile, but unless they’re hunted down and brought to justice, they’ll be back. You can bet on it.
The Fed’s plan is lousy. Indeed, even FERC is thinkin’ o’ blinkin’. When California deregulated, we handed authority to regulate wholesale rights over to the ideological goofballs in DC. Unfortunately, their plan — to cap prices based on the costs of the most expensive plant — still leaves us with ridiculously-over priced electricity and the plan can be gamed by megawatt-laundering — the practice of selling power out of state and then, after its price has increased, back into California.
The Three Rs. FERC’s just trying to protect the Bush Administration and the energy industry with a temporary political sop that will preserve pro-deregulation efforts in other states, which have been brought to a standstill by the California dereg debacle. California requires Rollbacks, Refunds and real Regulation, not caps.
The market shows no mercy. Bloomberg News reports that not only was the "market price" for electricity through the roof in the first quarter of 2001, the State of California paid well above that market price. The state’s average cost for power was $285/Megawatt-Hour (MwH) during the quarter, much higher than the average market price of $248/MwH in NorCal and $211/MwH in SoCal. California paid an extra $492-$985 million over the already obscene average price because, as one energy industry consultant put it, "[California is] often at the mercy of the market."
Energy industry to Governor Davis: Our negotiators are better than your negotiators. Here’s how Enron describe the differences between power company traders and government negotiators: "We hire extremely bright people," OUCH. "Most of them have advanced degrees… [I] can guarantee that (Enron traders) get paid more than your average civil servant." And Williams Company takes us to the cleaners with their significant "technology and modeling…If the state doesn’t have those types of investments, it’s unlikely they would be able to trade as effectively." In other words, we’ve got so many ways to rip you off, you might as well hand over the money right now. Oh, that’s right we already did (see long-term contracts, above).
Extraordinary Measures. Why is it that whenever we hear the expression "extraordinary times call for extraordinary measures," it seems as though the average consumer has to take the extraordinary measure of paying more money? Here’s a nice change to that: the Assembly Judiciary Committee passed AB2x 35 , a bill by San Diego Assemblyman Vargas that requires the state power authority to take over unregulated power plants if they are found to be overcharging or withholding power. The state will operate the seized plants for up to two years and run them on a low-cost basis, ensuring the reliability and affordability of our energy system. The use of the state’s power of eminent domain, as a complement to the windfall profits tax (SB2x 1), is the extraordinary measure that is needed as an antidote to the profiteering that has occurred in California for the last 12 months and will likely occur during the summer and for years to come if we don’t act. Eminent Domain isn’t just being handed to the power companies, they earned it.
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