Bailout Watch #57 – Jul 05, 2001

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

Bailout Watch #57 – Jul 05, 2001

View today’s Bailout Watch Cartoon

Saving face by losing facing. Finally acknowledging that the power contracts he signed are overpriced, Governor Davis proposed renegotiating them. A victory for California consumers, right? Not with Giveaway Gray at the helm. No, instead of demanding a new round of good faith bargaining to ensure that the state’s power contracts are fair, the Governor wants to play "Let’s Make a Deal." In exchange for the reformulation of the overpriced contracts, the Gov. will cancel some of the state’s demand for billions in refunds from the energy companies. In his own words: "We’ve made suggestions, we’ve offered various ways in which people [power companies] could get us $8.9 billion [in refunds] … You can renegotiate our existing contracts and save us money." In other words: if you stop cheating us on tomorrow’s prices we’ll forget about how badly you cheated us yesterday. Note: Californians deserve far more than $8.9 billion in refunds from the profiteers, anyway (see BW#56).

Remember when we said that the federal price caps were lousy (BWs 55, 53)? Here are some of the headlines since they’ve been in effect:

    * "Some generators withhold power rather than abide by rate caps" SF Chronicle
    * "Electricity price-cap tests spark allegations" SD Union Tribune
    * "U.S. Price Controls Are Said to Worsen Power Shortage" NY Times

The reason is frustratingly simple. The arbitrary price caps established by the Bush Administration lead to confusion and inefficiency (not to mention overpriced power). The only way to keep energy prices reasonable and protect the reliability of the supply is to use cost-of-service regulation to determine the wholesale price of power sold from any and all plants. The deregulated energy system is less reliable and more expensive than a well-regulated system. The generators claimed that the inability to determine the price they’d be paid under Fed’s price cap scheme was the reason for withholding power. To address that, the FERC should let them know the price they’ll get by actually regulating the plants (the old way), which has the added benefit of keeping prices low.

Getting into the act. That other energy cartel (view the cartoon) must be getting a little jealous of their electricity counterparts. Power generators have been able to increase prices by as much as 4000%, yet the oil industry is stuck in the mud with mere 75%-80% increases. Well, no more hard times for Big Oil. Last week, Texaco, in a joint effort with Edison, opened up a power plant in Bakersfield, Calif. They even got a $1M bonus from the state for getting the plant on-line so quickly. So we should all rest a little easier, because the oil industry has come to rescue us.

Join FTCR’s Blackout Brigades.

Judgment Day
488 Days Until November 5, 2002

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