Bailout Watch #64 – Aug 08, 2001

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

Bailout Watch #64 – Aug 08, 2001

National Edition

Prez. to Governors: We can deregula… I mean regulate your power grid for you. Addressing a meeting of the National Governors’ Association, President Bush’s Energy Secretary, Spencer Abraham, threatened to push legislation that would federalize state transmission lines. Under Abraham’s proposal, decisions regarding the siting and construction of power lines would be taken out of the hands of the state and local constituencies that would be affected most by those decisions. The Bush Administration’s plan, while ostensibly about facilitating the construction of adequate transmission capability, is really about nationalizing power regulation (which, despite the words "nationalizing" and "regulation" is really about deregulating the energy industry even more). It is part of the move toward a national, deregulated electrical transmission grid that would multiply California’s crisis — and power company profits — by a factor of fifty.

Chairman Hebert, Enron wants your resignation on President Bush’s desk by tomorrow morning. First, a disclaimer: California is not losing a friend of the consumer with the announced resignation of Federal Energy Regulatory Commission Chairman Curtis Hebert. Nonetheless, Hebert’s resignation is troubling because it reveals the workings of the invisible hand of Kenneth Lay, head of the Enron Corporation. In Washington, people don’t just give up their powerful positions. People resign because somebody above them tells them to resign. Back in June, it was reported in the New York Times that Lay was putting the heat on Hebert to pursue a more federally-oriented deregulation stance (Enron-style — see above) in return for Lay’s endorsement; the energy executive, after all, has enjoyed legendary influence with the President, who appoints Commission members and names the Chairperson. But Hebert snubbed Lay, who views the pro-dereg outgoing commissioner as not pro-dereg enough. Lay has been a long-time supporter of fellow Texan Pat Wood, who is expected to take over Hebert’s post.

Ten-Gallon mistake. As soon as Texas deregulated last week, wholesale prices shot up astronomically. Hmm…sound familiar? Not to worry, deregulation zealots assured wary consumers, it was just a temporary glitch–and free-market ideologues promised that Texas wasn’t California. But yesterday, prices on the wholesale market shot up again to about 20 times the normal price. Texas’ transmission grid operator says that this is because the generators are still learning how the market works. Uh-oh. If they don’t understand the market yet, just think what they’ll charge when they’ve figured it out. The "It Can’t Happen in Texas" set crows about the surplus of generating capacity in Texas as evidence that that state is immune to the California-style market abuses. But California had a surplus before deregulation as well, and the power companies and the FERC blocked PUC-ordered plant construction in California in 1995 on these grounds. What the Texas regulators don’t seem to realize is that, after you deregulate, it’s good-bye surplus as the power companies tighten up reserves to increase their profits. Deregulation boosters also argue that Texas is avoiding California’s mistakes by not fully deregulating. But wait a minute; isn’t the main gripe of the dereg fanatics that California didn’t deregulate all the way? The lesson to be learned here is that there is no way to deregulate that won’t end up hurting consumers.

Quotable: "Competition is just crumbling. … I think it really opens the issue of whether or not electric competition in Texas can work." Randy Chapman, executive director of the Texas Legal Services Center in the Fort Worth Star-Telegram (08/07/01).

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