Energy Industry Gets the Break the SEC Gave Enron in ’94
Senate Majority Leader Tom Daschle is backing legislation that, in the guise of environmental protection, would further deregulate the electricity industry. Senator Daschle’s proposed amendment to Senate Bill 517, scheduled to be debated in the Senate this week, will repeal the Public Utilities Holding Company Act (PUHCA), a sixty-five year old law that protects ratepayers and investors; it also continues the deregulation of wholesale electricity prices, a chief cause of price gouging in California in 2000 and 2001.
Click Here to read a fact sheet on S.517.
The power industry wants the Senate to send the bill over to the House before congressional investigators link Enron‘s role in electricity deregulation in California to that state’s $70 billion energy debacle last year. That’s one reason why the 420 page bill will not be heard by any committee: Daschle is hijacking a bill already on the Senate floor in order to avoid scrutiny of its impact.
Daschle has disguised his deregulation bill with various “environmental protections” in order to win the support of self-described environmental groups like the Natural Resources Defense Council (NRDC), which has shilled for the energy industry before, serving as cover to get deregulation past the California legislature in 1996.
“Thanks to electricity deregulation, Californians are paying 50% higher electricity prices to Enron and other energy companies,” said Harvey Rosenfield and Doug Heller, consumer advocates with the Foundation for Taxpayer and Consumer Rights (FTCR) who led the fight against California deregulation. “Senators are publicly flogging Enron executives, but meanwhile they are quietly implementing Enron‘s agenda. The Enron scandal shows us that we need more oversight of these big corporations, not less. But for all their supposed indignation over Enron, it’s business as usual with the politicians, who are willing to cater to their donors in the energy industry as it seeks to enrich itself at the public’s expense.”
Amendments to S.517, the Energy Policy Act of 2002, sponsored by Senators Tom Daschle (D-SD) and Jeff Bingaman (D-NM), would:
- Repeal the Public Utilities Holding Company Act of 1935 (PUHCA), which protects consumers against powerful monopoly electric utilities. PUHCA restricts investments by utility holding companies in non-utility businesses and restricts ownership of other utilities outside of a utility’s own service territory, in order to discourage anti-competitive consolidation within the industry.
- Authorize FERC to continue to use “market-based rates” instead of regulated rates. Section 203 of the Daschle proposal sets guidelines for the Federal Energy Regulatory Commission (FERC) to approve electric rates based on a market price rather than the traditional cost-of-service regulation basis, which requires electricity prices to be set according to the cost of producing the power plus a fair profit. For months during the energy crisis, FERC refused to intercede to stop profiteering in California on the grounds that wholesale electricity rates were “market based.” FERC’s inaction cost Californians billions of dollars last year.
- Repeal protections of investors by eliminating, through repeal of PUHCA, a series of public disclosure requirements that allow the Securities and Exchange Commission to maintain company data regarding financial structure, asset values, relationship of underwriters to the company, executive contracts with and borrowing from the company, contracts and myriad other information necessary for properly evaluating the complex structures of utility companies.
In 1994, the Securities and Exchange Commission exempted Enron from PUHCA at the company’s request. This allowed Enron‘s trading operations to dominate power markets and avoid scrutiny of the corporation’s behavior. For example, with the exemption, Enron was freed from rules prohibiting acquisitions that “unduly complicate the capital structure ‘ or will be detrimental to the public interest or the interest of investors or consumers'” [United States Code Title 15, Section 79j(b)(3).]
In lieu of the barriers to anti-competitive behavior and high-risk investments created by PUHCA, the Daschle proposal merely requires that the government have access to power companies’ books. Instead, lawmakers should be closing the loopholes that allowed Enron to escape regulatory oversight, according to consumer advocates.
“Consumers across the nation will face a California-style disaster if power companies are allowed to charge unregulated prices for electricity. Electricity is too vital to the public safety and economy to leave in the hands of unregulated power companies, as Senator Daschle proposes,” said FTCR.
NRDC’s support for the deregulation bill mirrors its chicanery in the 1996 passage of the California deregulation law, when the group provided the cover for a $28 billion bailout of nuclear power plants and the elimination of regulatory controls over the energy industry, in exchange for limited funding of renewable energy projects. S. 517 contains a “Christmas-in-March” grab bag of favor-currying, but unrelated, provisions concerning automobile fuel efficiency, energy policy on Native American lands, renewable energy sources, natural gas pipelines, auto safety, federal energy efficiency, global warming and climate monitoring, railroad efficiency, coal mining and Department of Energy science and technology initiatives.
“This unscrupulous organization is once again providing cover for the energy industry’s plans to fully deregulate the power industry. By green-washing the bill, politicians hope to hide the energy company giveaway that is at the heart of the plan,” said the consumer advocates.
FTCR is a California-based non-profit, non-partisan research and advocacy group.Read it’s recent report on California’s energy crisis — HOAX: How Deregulation Let the Power Industry Steal $71 Billion From California.