DukeEmployees.com - Duke Energy Employee Advocate
Deregulation - Page 22 - 2002
Duke, AEP Center of FERC HearingDow Jones – September 21, 2002
(9/18/02) - WASHINGTON - (Dow Jones) - The Federal Energy Regulatory Commission voted Wednesday to hold hearings to consider requests by Washington state and California utilities to break high-priced long-term power contracts.
At issue are long-term contracts entered into by public utilities in Snohomish county, Wash., and Sacramento during California's energy price spike in 2000-01.
The utilities allege American Electric Power Co. (AEP) and Duke Energy Corp. (DUK) sold power to them at unjust and unreasonable prices brought on by the crisis environment in West Coast energy markets at that time.
While agreeing to hold a hearing on the complaints, FERC said the Snohomish and Sacramento utilities will "bear the burden of proving that the extraordinary remedy of contract modification is justified" So far, evidence contained in their complaints doesn't bear that burden, it said.
FERC said it would put off the hearings until the parties have a chance to discuss settlement. A FERC judge will oversee settlement talks and make an initial report within 60 days on whether settlement can be reached.
A FERC judge has been overseeing similar demands by the California Department of Water Resources, the state's power purchasing agent, to renegotiate long-term contracts signed in the first half of 2001.
Deregulation: ‘All Pain, No Gain’San Diego Union-Tribune – by Craig D. Rose – September 21, 2002
(9/19/02) - Declaring that electricity deregulation will bring "all pain, no gain" for the nation's consumers, the nation's largest consumer federation yesterday called for a halt to further government efforts toward deregulation.
The Consumer Federation of America cited the California electricity crisis and problems elsewhere as evidence that any benefits from competition are far outweighed by risks and additional costs brought on by opening tightly regulated electricity markets.
A report from the federation, composed of more than 200 groups totaling 50 million members, noted "monopoly overcharges," or the ability of suppliers to withhold or simply overprice their electricity, along with higher costs for plant building and administration as the consumer risks of deregulation.
"The evidence that radical restructuring and deregulation will result in higher costs has become overwhelming," the federation concluded in its study distributed yesterday.
Mark Cooper, research director of the federation and author of the report, said despite the evidence, state regulators and federal officials are headed in opposite directions on deregulation.
"Every state outside of the Northeast that has started down the path to restructuring has stopped or slowed down," said Cooper. "The ironic thing is that federal authorities and (the Federal Energy Regulatory Commission) just want to charge ahead."
Cooper called for a halt to efforts to repeal the Public Utility Holding Act, a Depression-era law that limits interlocking corporate ownerships. The law focuses utilities on providing service to customers, rather than organizing complex business structures, he said.
"Rather than repeal (the law), it should be strengthened," Cooper said.
He added that FERC should "take a step back" from pressing to impose a standard electricity market design on the nation, which suppliers say will standardize what is now a hodgepodge of state rules and allow them to broaden the scope of national energy trading.
Cooper said the FERC action was coercing publicly owned utility districts which serve about one-quarter of the nation into participating in what could be expensive deregulation efforts.
But a spokesman for FERC said its objective was to create a market plan that would avoid problems such as the cost-inflating schemes made famous by Enron Corp.
"If we want to make sure those things don't happen, we need a standard market design," said Kevin Cadden, the FERC spokesman. "Whether a state goes to retail electricity competition is a state decision. Competition in the wholesale market is here, and it's here to stay."
NC Rejects Electric Grid PlanThe Charlotte Observer – by Charles Hurt – September 19, 2002
(9/18/02) - WASHINGTON - Conjuring visions of California's electricity blackouts and astronomical utility bills two years ago, the federal government is pressing forward with plans to place the country on one massive electricity grid and open it to the free market.
North Carolina Utility Commissioner James Kerr joined state officials from across the country in Washington on Tuesday to warn legislators of dire consequences if the nation's transmission of electricity is turned over to the wild, wild west of energy entrepreneurs.
"It will inject market-based risk into North Carolina that customers aren't now exposed to," said Kerr, who attended the Senate energy committee hearing but did not testify. "Why do we need to take this chance?"
Kerr joined utility commissioners from states in the South and the Northwest, where customers generally enjoy cheap electricity generated and sold locally by power plants scrutinized by state governments.
Pat Wood, chairman of the Federal Energy Regulatory Commission, acknowledged past problems with deregulated energy in California but vowed that the commission had learned from those mistakes.
The proposed changes are "built upon the real experience and best practices of the world's best competitive markets," Wood said.
Interlocking the nation's power grids and allowing electricity to zap freely around the country, he said, would ultimately decrease the cost of energy for customers.
The plan also would allow small, independent energy producers to get into the market, he said.
Under today's structure, barriers to small producers remain the greatest impediment to more environmentally friendly energy sources such as wind power.
The proposed changes face stiff opposition, particularly from the Southern Governors' Association, which vowed to fight the federal commission. The group argues that customers in places such as the Carolinas will end up paying for upgrading the system so that large surges of energy can be transmitted out of the region more freely.
Lawmakers were cool, if non-committal, about the issue.
Sen. Jesse Helms' main concern is that under the proposed system, oversight would no longer be in the hands of state utility commissions but the federal government. This, according to his office, would make it all that much harder to lodge complaints about service or billing.
Sen. John Edwards is still researching the issue, according to his office.
Opposition to Grid PlanAssociated Press – September 19, 2002
WASHINGTON (AP) - A federal proposal to create a single, nationwide market for electricity sales could raise utility rates across the Northwest while giving residents few, if any, benefits, according to regional congressional lawmakers.
``We believe the (new) rules will increase ... opportunities for market manipulation and price gouging, thus raising rates and harming consumers,'' the Northwest delegation said in a letter to Energy Secretary Spencer Abraham.
The plan by the Federal Energy Regulatory Commission could force Western consumers to pay to upgrade electricity transmission systems nationwide to send power to distant markets, the lawmakers said.
The proposal also fails to take into account regional differences in favor of a ``cookie-cutter approach'' that might work in the densely populated Northeast, while causing problems in the more open South and West, the lawmakers said.
The letter, drafted by Rep. Peter DeFazio, D-Ore., and Sen. Patty Murray, D-Wash., was signed by 24 members of Congress from Oregon, Washington, Idaho and Montana. Regulators in three of the four states - Oregon, Washington and Idaho - also oppose the plan, which will be the subject of a hearing Tuesday before the Senate Energy and Natural Resources Committee.
All five senators who serve on the committee signed the letter: Sens. Maria Cantwell, D-Wash., Ron Wyden, D-Ore., Gordon Smith, R-Ore., Larry Craig, R-Idaho, and Conrad Burns, R-Mont.
Federal energy regulators proposed the rule changes in late July, saying they wanted to prevent a repeat of last year's energy crisis in California and other Western states. The new rules should eliminate an inefficient patchwork of regulations across the country that allows or even encourages manipulation of energy markets and dampens competition, commission members said.
But officials from Southern and Western states call the plan risky and untested, and say it amounts to little more than a power grab by a federal agency intent on wresting control of utilities from local and regional authorities.
Officials in 17 mostly Southern and Western states have joined together to oppose the plan, and the Southern and Western governors associations have adopted separate resolutions criticizing it. Kentucky Gov. Paul Patton is among those scheduled to testify against the plan on Tuesday.
Marilyn Showalter, chairwoman of the Washington Utilities and Transportation Commission, also is scheduled to testify. In an interview Monday, Showalter called the FERC plan ``a design out of Washington, D.C., to try to invent a national market for competition'' in electricity.
``This is the kind of centralized control of a whole country's markets that I thought would have gone out with the last Soviet Union five-year plan,'' she said.
California Gov. Gray Davis has voiced similar criticism, saying ``FERC's one-size-fits-all approach'' would give power generators ``a free ride,'' trample on states' rights and fail to address the market conditions that led to manipulation by Enron and other generators.
FERC Chairman Patrick Wood III defends the so-called ``standard market design'' plan as a way to create lower electricity costs by making it easier to move power across greater distances than current markets can handle. Wood, who also will testify Tuesday, said the new rules should prevent transmission and generation shortages as well as the kind of price manipulation seen in California.
Rep. Earl Blumenauer, D-Ore. was the only Northwest lawmaker who did not sign the letter. A spokeswoman said Blumenauer's actions were not meant as a statement for or against the plan.
A Blow to DeregulationL. A. Times – by Nancy Rivera Brooks – September 19, 2002
(9/15/02) - When Western electricity traders gathered in Ojai in June for their industry group's annual meeting, the masters-of-the-universe attitude was gone.
Traders, who in the age of Enron Corp. seemed to rule the energy world, complained they were spending more time defending against market-manipulation lawsuits and investigations than they were buying and selling electrons. "It was pretty glum," acknowledged Gary Ackerman, executive director of the Western Power Trading Forum, the Menlo Park, Calif.-based trade group.
Since then, the energy trading sector has staggered through a summer of financial disaster that has badly shaken the business.
The year has brought accusations of questionable accounting and trading practices, stubbornly low electricity prices, deep losses, abrupt executive departures and widespread layoffs as companies scaled back or abandoned electricity trading. Energy merchants are mounting the equivalent of a giant yard sale of energy assets and have postponed or canceled the construction of scores of power plants.
The pain has been severe for the companies, their employees and shareholders. But there are even wider implications from the meltdown, including potential electricity shortages and a lack of good energy deals for big industrial users and others, which could eventually mean higher costs for consumers.
The trading of energy products might seem to be an esoteric enterprise far removed from the daily business of flicking light switches. However, energy trading firms also build power plants. With the companies in such sorry financial shape, they are pulling the plug on plant-building programs and eliminating projects capable of generating 86,000 megawatts of electricity nationwide. During the last two years, projects that could generate an additional 90,000 megawatts have been put on hold, according to Platts, an energy research company. (One megawatt can power about 750 homes.)
More of the canceled or postponed power plants were in California than any other state, Platts said, with total potential production capacity at about 19,000 mega-watts. Calpine Corp. of San Jose was most aggressive in the nationwide pullback, followed by Duke Energy Corp. of Charlotte, N.C.
"Clearly the boom is over and we're in a bust," said Brian Jordan, director of North American electricity markets at Platts. "When the bust becomes so severe and a lot of plants are being killed or postponed, that suggests that the next boom-bust cycle will be even more severe." California's Supply
Although the nation as a whole will have more electricity than it needs until 2006, California may begin experiencing power shortages after 2003, said Christopher Ellinghaus, energy analyst with Williams Capital Group, a New York investment bank, who recently completed a market-by-market study of electricity supply.
The California Energy Commission on Wednesday licensed a 600-megawatt power plant in Hayward, which Calpine is scheduled to begin building early next year for operation in 2005. But a Calpine spokesman said Thursday that the company won't build the $400-million plant unless it can sign long-term power contracts for the juice electricity the facility would produce.
The California Energy Commission, however, is not ready to send up warning flares, despite the cancellation or postponement of several power plants. Some of the proposals were not all that serious anyway, said Claudia Chandler, assistant executive director of the commission. "It's not the market that people thought it was when everyone thought they could make a bazillion dollars in power plant development. Now we're seeing the real developers."
"Power plants are being built," Chandler said, adding 2,766 megawatts in the year ended July 31 with 3,643 megawatts to be added in the next fiscal year. "We are OK through the end of 2004, though we are watchful of 2005."
At the same time, power trading has shriveled. Platts estimates that trading in some key daily and forward electricity markets has fallen as much as 70% from a year ago. This may not make much of a difference to California power users, forbidden by law from seeking the best deal for electricity on the open market, at least for now. But some market-watchers say the declining number of energy merchants also has affected the sale of natural gas, which was deregulated in the '80s.
As a result, some large customers have a harder time getting energy contracts signed with energy middlemen, or at least on the terms they would like, consultants say. And with a slowdown in the trading of energy derivatives, which are contracts based on the future price of a commodity, big energy users are having trouble hedging against large price movements.
Higher Energy Costs
Large industrial and commercial customers usually secure their own supply of natural gas, but residential and small-business customers are served by utilities such as Southern California Gas Co., a unit of Sempra Energy. Higher energy costs for large industrial and commercial users can be expected to eventually reach the consumer through higher prices or fewer jobs, if corporate profits suffer.
"It's becoming much more difficult to get deals done," said one consultant, who wished to remain anonymous to avoid annoying his clients. "Until late last year you could do a one-or two-year deal over the phone very quickly and you could have multiple parties within fractions of a cent of each other. You knew you were getting a decent price."
Los Angeles County went shopping for natural gas 2 1/2 years ago and found nearly 20 companies vying for the contract to supply the county's many facilities. When the county went back to the market in June, only two firms were willing to offer the kind of fixed-rate contract that the county sought to shield against the gas price spikes of two winters ago, said county energy manager Howard Choy.
"There was no real competition, nobody having those portfolios where they can mix and match to create savings," Choy said. Instead, the county got a fixed price based on the published cost of producing gas plus transportation. "If somebody is really trying to stick it to us, we know it, but at the same time, we're not getting any great deal," he said. Still, compared with the extraordinarily high prices paid in the winter of 2000-2001, "we look like geniuses," Choy quipped.
Southern California Gas spokeswoman Denise King said energy trading problems have not hindered the utility's ability to buy natural gas for its customers.
A Blow to Deregulation
The trading industry's struggle was a blow to the deregulation movement and competition's promise of lower prices and more consumer choice--now an impossible sell in California. Several states that considering opening their utilities to competition have slammed on the brakes, but federal energy regulators recently signaled a plan to open electricity markets and transmission nationwide.
"There's been a loss of momentum," said Ken Malloy, chief executive of the Center for the Advancement of Energy Markets, a pro-competition think tank. About 10 states remain committed to energy industry restructuring and 15 others had been considering opening their monopoly utilities to outside competition but are now "frozen in place," he said.
Mark Cooper, energy analyst at the Consumer Federation of America, considers that good news. "It proves something very important: There are certain public values embedded in electricity and telecommunications and other utilities that are not well-suited to the market mentality that these traders thrived on," Cooper said.
The fast-growing, largely unregulated businesses of energy trading and power generation and the high electricity prices that fed them seemed like a party that would never end. Now that it has, these same companies are scrambling to look like traditional utilities again to regain Wall Street's favor.
"It is quite interesting how poorly the financial community understood this business," said Lawrence J. Makovich, a senior electricity consultant at Cambridge Energy Research Associates. "The market was rewarding trading and merchant power in spite of some clear evidence that there were big problems here." Trader woes began with a collapse in electricity prices last year that was exacerbated by the economic malaise after Sept. 11. Then followed a fast-spreading contagion in the industry known as Enronitis: The disintegration late last year of the world's largest energy trader drained confidence in the energy trading business and sucked liquidity from the energy market, which operates on an enormous amount of cash and short-term credit.
Wall Street credit raters re-evaluated the industry and methodically slashed the debt rating of most market players deep into "junk" territory. Hard hit were the major power sellers, including AES Corp., Duke Energy Corp., Dynegy Inc., Mirant Corp., Reliant Energy Inc. and Williams Cos. Other traders also have been hurt, such as Calpine, which won much praise from Gov. Gray Davis for building some key power plants in the state.
When will this sector improve?
Some Wall Street analysts figure the trading business has been through the worst but will limp along for a year or more with the possibility of a few major corporate wipeouts to come. Others warn of more weakness ahead among energy trading companies that already have lost more than $200 billion of market value.
"Few doubt that one or more energy merchant companies may soon file for bankruptcy," Standard & Poor's analyst Peter Rigby wrote in a recent report.
The business that survives will look different with new players, new business models and new regulations. Bank of America Corp., for instance, plans to beef up its power-trading operations as are other financial institutions.
"I think we've hit the bottom in terms of trading volume and the credit crunch that has caused many people to abandon power trading or to cut back severely," said Ackerman of the power trading industry group. "Enron is gone," he said. "What will replace it will be more sophisticated trading with more open rules and more open reporting."
Duke and 4 Others Blasted for BlackoutsReuters – by Leonard Anderson – September 18, 2002
SAN FRANCISCO - Californians could have been spared blackouts at the height of the state's energy crisis if five big generating companies had kept their plants running at full capacity, a state investigation concluded.
"Based on an hour-by-hour and plant-by-plant analysis of this data, this report concludes that most of California's power blackouts and service interruptions need not have occurred," the report said.
The report is the latest salvo in state energy officials' ongoing fight with the merchant generators they accuse of taking advantage of the state's flawed bid to deregulate its power market, pocketing billion of dollars in the process.
While conceding the state faced a real energy shortage, the analysis "establishes that Californians need not have experienced the large majority of blackouts and service interruptions in 2000-2001," the report said.
The problems on the grid "disrupted commerce and compromised public safety, affecting roughly one-third of all Californians," the report said.
California Gov. Gray Davis accused the generating companies of "ripping off" consumers and "purposely putting the lives of Californians in jeopardy in the name of greed."
Davis added the CPUC's report "is more fuel for the U.S. Department of Justice to take action."
The findings from a lengthy probe of power plant operations conducted by the California Public Utilities Commission were presented on Tuesday to a state Senate committee in Sacramento by commission president Loretta Lynch.
The committee, chaired by California state Sen. Joe Dunn, is looking into alleged manipulation of wholesale energy prices in California.
The CPUC said changes are needed to assure that power generators "cannot create artificial power shortages and market distortions like those of the 2000-2001 energy crisis."
The CPUC's investigation, which is continuing, examined data on power production, plant outages, bidding behavior of generators and power transmission during the 38 days of blackouts and service cuts from November 2000 through May 2001.
SETTING ITS SIGHTS
The commission focused on the operations of the five largest independent generators -- Duke Energy Corp., Dynegy Inc., Mirant Corp., Reliant Energy Inc. and AES/Williams, a power venture between AES Corp. and Williams Cos. Inc.
If the companies cited in the report had been generating at full capacity from their plants, Southern Californians could have avoided all four days of rolling blackouts and Northern Californians could have escaped 65 percent of their blackouts.
On all but two of the days of blackouts and service cuts, the five generators did not supply "well over 500 megawatts of power they could have generated," the CPUC said.
One megawatt is enough power for about 1,000 homes.
Large commercial and industrial concerns which had agreed to service cuts in exchange for lower electricity bills had to shut down their businesses "much more frequently than was necessary or anticipated, often day after day," the CPUC said.
The five generators accounted for about 38 percent, or 17,000 megawatts, of power on the state's main electric grid.
State energy officials had suspected the plant operators shut their units to ratchet up prices, prompting the state to appoint a group of inspectors to ensure outages were genuine.
Gary Cohen, the CPUC's chief attorney, told the senate committee that "the only reason imaginable" why the generators would hold back capacity was to "drive the price up."
At the height of the crisis in December 2000, in-state power prices soared as high as $1,500 a megawatt hour, 50 times what they were before the emergency began in May 2000.
Merchant power generators, who bought an aging fleet of plants from California utilities as part of the deregulation plan, rejected the report's findings.
"Duke's plants generated 45 percent more power during the...crisis than they did during the previous 10 years under utility ownership," company spokesman Pat Mullen said.
Generators, when questioned during the crisis why their plants were so often shut, typically cited mechanical breakdowns and extensive upgrades to make the units more efficient and to comply with environmental standards.
Even so, the CPUC said that outages at the plants were well above historical averages, adding that more than 40 percent of Mirant, Reliant, and AES/Williams generating capacity was either not available or not used during blackouts.
The Independent Energy Producers, a trade group representing merchant power generators, slammed the report, with executive director Jan Smutny-Jones calling for an end to the "blame game" following the deregulation debacle.
"Despite their age, California's power plants ran 88 percent harder in 2001 than they did in 1999, and some increased output as much as 206 percent to meet our state's energy needs," he said.
Their plants' "run rate" were vastly improved this past year after state and federal regulators stepped in to police the market and stabilize volatile energy prices.
Enron's Giant Photon Scam ProbedThe Daily Enron – September 14, 2002
At some point it dawned on the wheeler-dealers at Enron that selling real things - like gas and oil - had it limits. What they needed were products that had no physical limits. Energy contract futures were their first discovery, and how sweet they were. No more messy oil or smelly gas to deliver - just electronic bookkeeping notations. How terribly civilized. How wonderfully fungible - especially when they were kept in sunny offshore Caribbean accounts. Like the old song about music: "It goes in here…goes around and around and around and around…and comes out here" - or - maybe it never comes out.
Energy future contracts were great but they still had some relation to the physical world - actual energy products. And, that placed some physical-world limitations on just how much they could be manipulated.
That's when Jeffrey Skilling discovered a product so ephemeral it bordered on metaphysical - bandwidth. Hot dog! It was weightless, colorless and odorless. A million angels could dance on the tip of this pin and one could argue without fear of contradiction that there was still room for a million more. This was the scam artist's Holy Grail and Enron declared it as its own.
Here was the thrust of the scam. Bandwidth - which is nothing more than available digital communication capacity - (i.e. internet access) should be treated like a commodity, the company said. So, Enron would begin brokering available bandwidth. Say Company A has a contract that allows them free use of a large-capacity "T1" highspeed data line. But, it only uses it during hours 9 am to 5 pm daily. During the rest of the day they are not using the "space" on that line. Enron would add that unused bandwidth capacity to its inventory and find customers who need bandwidth during that period and contract it to them.
It's an over-simplified explanation for what became a much more complex scheme. Enron had finally found the perfect product. It was no longer selling anything real, not even an atom. Instead they were selling space…the space through which photons travel down fiber cables. Enron was now brokering something so wispy, so hard to quantify, so difficult to audit, that the sky was the limit.
At the time Enron's Skilling was hawking this new business line - Enron Broadband Services (EBS) - to investors, the company was being praised for its vision and for being the first company of the emerging cyber age. In fact it may have been Enron's most audacious scam.
In January 2001, during Enron's annual analysts' meeting at the Four Seasons Hotel, Enron's then-President Jeff Skilling aggressively promoted the new business. He went so far as to claim that their new virtual product line was worth at least $40 per share all by itself. Back in Houston, EBS employees watching the presentation on closed circuit TV gasped in amazement. They knew that in reality EBS was little more than a giant smoke and mirrors operation.
Almost everything EBS did was phony. In the summer of 2000, EBS announced it would purchase 18,000 servers from Sun Microsystems - ostensibly to manage all that bandwidth they were brokering. It never happened. But, it was a good show for investors who poured more money into Enron stock, which, of course, rose on the basis of this news.
At one point Enron executives filled a room full of computer terminals staffed by Enron employees from other departments when analysts came to see the new EBS operation. The terminals were not connected to anything. The whole thing was an elaborate Hollywood set.
Bandwidth was also the perfect way for likeminded companies to manufacture illusory revenue streams. Investigators have been looking into a deal Enron did with Denver-based communications company Qwest back in September 2001. Qwest agreed to pay Enron $308 million for use of "dark fiber" -- unused fiber optic capacity. In exchange, Enron agreed to pay Qwest between $86 million and $195 million for access to active sections of Qwest's network.
The deal was all nonsense, of course, allowing both companies to record fat revenues for the period. In reality, the deal allowed Enron to avoid reporting a fat loss that period.
Executives Indicted - None from EnronThe Daily Enron – September 13, 2002
Tough Manhattan District Attorney, Robert Morgenthau, will slap three former top Tyco executives with fraud charges today. Morgenthau reportedly plans to file fraud and larceny charges against former Tyco chief executive L. Dennis Kozlowski. Tyco's former chief financial officer, Mark H. Swartz, and the company's former general counsel, Mark A. Belnick, were also expected to be charged.
Kozlowski has already been charged in June in a 14-count indictment for tax evasion.
The new charges will reportedly detail how Kozlowski, Swartz and Belnick engineered a systematic looting of Tyco's coffers of at least $250 million.
While the list of corporate evildoers charged with crimes has grown in recent months, the names of top Enron officials do not appear among them.
The Return of Voodoo EconomicsSalon.com – by Arianna Huffington – September 13, 2002
The policies once blasted by the president's father have become the centerpiece of the current administration's economic policy.
Sept. 5, 2002 | Like a lung cancer patient reaching for a pack of smokes, the Bush administration has greeted the latest run of gloomy economic news -- Tuesday's stock market plunge, a ballooning federal deficit, flagging consumer confidence, mounting unemployment, not to mention those pictures of Dennis Kozlowski literally wrapping himself in the flag in his yacht over Labor Day -- with a nerve-settling puff of its favorite brand of economic relief: tax cuts for the rich. And considering the imprudence of that idea, maybe they're smoking something a little stronger than Marlboros.
According to the White House, the proposals being considered include tax incentives to encourage stock market investment and capital gains tax cuts -- on top, of course, of the massive impending tax cuts for the wealthiest Americans already signed into law. Treasury Secretary Paul O'Neill defined the party line this way earlier this summer: "This is how we create economic prosperity -- not by strangling people with interference and regulation and punishing restrictions on trade and job creation, but by opening the world up."
In other words, meet the new new economy, same as the old new economy. Forget the inconvenient fact that deregulation hasn't worked -- that it's given us an airline industry on the verge of collapse, higher electric and cable bills, a savings and loan disaster, to say nothing of Enron, WorldCom, Adelphia, AOL, Xerox, Merrill Lynch, et al. -- the invisible hand is still the magical answer to all our woes.
How did the free-market ideology of the Reagan revolution come to be the political consensus of our times? How did we get suckered by the fairy tale that as long as people kept shopping, the market could keep our prosperity going as far as the eye could see? And that by voting with our credit cards, we could spread the gospel of prosperous democracy to any corner of the earth where American products were made or consumed. Like all fairy tales, it's a nice story. But it's time to acknowledge that this one didn't have a happily-ever-after ending.
Over the last 20 years, Americans have been doused with regular sermons on the supposed correlation between unregulated markets and higher standards of living. In the process, the American people were demoted from citizens to consumers, and sold a bill of goods about how the almighty market was the essential foundation of democracy. Accepted notions of public protections -- of the environment, of workers, of the poor -- were scrapped, cast out as superannuated relics. Compassion became the 8-track player of public policy.
In the course of selling us on buying, the market-worshippers shredded the modern social contract, the hard-fought consensus that had emerged since the New Deal, and which ordered our political priorities, our communal concern for the most vulnerable and our disapproval of huge inequalities. We were now supposed to believe that all that could be left up to the soulless, self-correcting calculus of supply and demand. The free market had become the People's Market and would, of course, take care of the people.
Once the province of Republican supply-siders, this all-encompassing faith was warmly embraced in the '90s by New Democrats. And some old ones, too. Even Jesse Jackson rang the opening bell at the New York Stock Exchange and created a Wall Street Project. And according to a representative of the NYSE, there is "no shortage" of celebrities willing to ring the bell, smiling and applauding even after a 300-point drop.
The media also did their part, hyping stories that made it seem like everyone was making money investing. Who can forget the Beardstown Ladies, those bestselling, stock-pickin' grannies from Illinois who were supposedly making a 23 percent return in the market? Or all those Millionaires Next Door -- like Anne Scheiber, the lowly government auditor who, by patiently investing in stocks, turned $5,000 into a $22 million fortune?
Stressed out about retirement? Your kids' college tuition? A family health emergency? Not to worry! The market would take care of all that. Even being downsized could be made fun and profitable. After AT&T laid off 40,000 workers in January 1996, hedge-fund manager Jim Cramer wrote a cover story for the New Republic titled "Let Them Eat Stocks." In it he proposed a simple solution. "Just give the laid-off employees stock options," he exulted, "let them participate in the stock appreciation that their firings caused." And why not toss in a year's worth of Turtle Wax while you're at it, Jim?
The future that Wall Street had dreamt of for decades -- free of pesky regulators, snooping politicians and profit-sapping social activists -- had finally arrived in a golden, irrationally exuberant dawn. Just as communists had promised a utopia in which the state would wither away, the free-market ideologues in control in the '90s promised us that we would reach Nirvana when all government intervention would, well, just wither away.
We would then find ourselves in a glorious Brave New World. Marxists and MSNBC stock analysts together at last, holding hands and feverishly chanting: "From each according to his culpability, to each according to his greed."
It would take a while -- and the fall of Ken Lay, Bernie Ebbers, Sam Waksal, et al. -- before the invisible hand was exposed as a pickpocket. But even after the free-market parade had to be called off on account, not of rain, but of fraud, we have begun to hear the trickle-down marching bands warming up in the distance, ready to play their familiar siren songs. It's time we resuscitated Mark Russell's definition of trickle-down as "something that benefits David Rockefeller now and Jay Rockefeller later." Or, to be a bit more current, George Herbert Walker Bush then, and George Walker Bush now.
There's another blast from the Reagan past that is a little more relevant to most Americans' current financial health than trickle-down dreams. Ask yourself, my friends, are you better off today, after all that tax cutting and deregulating, than you were four years ago?
Head Rolls at Allegheny EnergyAssociated Press – by David Dishneau – September 10, 2002
HAGERSTOWN, Md. (AP) - Allegheny Energy Inc.'s stock fell sharply Friday after the company said it had fired the president of its energy trading division for violating internal conflict-of-interest rules.
Allegheny Energy spokeswoman Cynthia Shoop said company officials don't believe Daniel L. Gordon's alleged transgressions had any impact on Allegheny's past or future financial performance. For that reason, Allegheny sees no reason to report its findings to the Securities and Exchange Commission, Shoop said.
She declined to comment on the nature of the questioned transactions, which she said had occurred late last year and early this year.
Gordon declined to comment on the company's actions when contacted Friday by The Associated Press. He was fired Thursday as president of the New York-based trading division of Allegheny Energy Supply, a subsidiary of Hagerstown-based Allegheny.
Allegheny's stock declined 7.8 percent, or $1.49 a share, to close Friday at $17.69 on the New York Stock Exchange.
A source familiar with the company's investigation, speaking on condition of anonymity, said Allegheny's continuing investigation had uncovered three violations of internal rules:
_ Gordon had a financial interest in a computer software services company that had contracted to do business with Allegheny Energy Supply.
_ Gordon was part owner of real estate that Allegheny Energy Supply had agreed to lease.
_ Gordon lied about his age and educational background in a sworn deposition taken by the Federal Energy Regulatory Commission ( news - web sites).
The violations occurred late last year or early this year, Shoop said.
Gordon was the head of Allegheny Global Energy Markets, which Allegheny bought from brokerage Merrill Lynch & Co. for $489 million in early 2001. He also led the unit when it was owned by Merrill Lynch, Shoop said.
Allegheny announced in July it planned to reduce its trading operations, and that Gordon would leave the company next year. His firing "accelerates that planned departure," the company said in a statement.
The dismissal is the latest blow to a company struggling to recover from its ill-timed expansion into what it hoped would be a lucrative market. Energy trading accounted for about half of Allegheny's $10.4 billion in revenue last year, Shoop said.
Allegheny announced in July it was cutting 600 jobs, or 10 percent of its work force, and canceling construction of two power plants to counter weakness in the energy trading market following Enron Corp.'s collapse. The company announced later in July it was considering selling assets to raise cash after losing $32.3 million in the second quarter.
Shortly after acquiring the Merrill Lynch's energy trading division, Allegheny signed a $4.5 billion contract to sell California enough energy to power a million homes for 10 years.
Allegheny Energy's utility division provides electricity and natural gas to about three million people in Maryland, Ohio, Pennsylvania, Virginia and West Virginia.
Deregulation Disaster in MontanaNew York Times – by Timothy Egan – September 5, 2002
ENNIS, Mont., Aug. 29 — Even with little population growth and a lack of high-wage jobs, Montana could always count on a few good things. There was cheap electricity, thanks to a power company with the personality of a rich, domineering uncle, and there were river trout that could make people forget their troubles in a hurry.
The trout are still here. But the cheap power and the company that delivered it are gone. Now many people here say Montana has lost what little economic self-determination it had, and they blame one of the few new economic notions that did find a home here, briefly, in the 1990's: deregulation.
In a populist campaign reminiscent of old battles against Eastern railroads and California copper barons, Montanans are to vote this fall on a measure that could lead to a public takeover of 12 hydroelectric dams owned by out-of-state corporations. The proposal, Initiative 145, would set in motion a process by which the state might buy the dams, through either negotiation with the owners or condemnation.
Opponents say the proposal would amount to brazen property confiscation that would do little to ease high power rates. But it is those escalating utility bills, in a state that consistently ranks among the nation's poorest, that are driving the campaign to take over electric power.
The push to buy the dams of Montana is part of a broader reaction to the energy and telecom deals that were hatched on Wall Street and changed the face of utilities that in some states had been enduring institutions. When companies like Enron and WorldCom expanded by buying one utility after another, their customers were mere observers. Now, in the aftermath of those companies' collapse, and with electricity bills moving steadily higher, the public in far-flung American towns is clamoring for a say.
Sold as a way to bring choice and lower utility bills, power deregulation is now about as welcome as drought, at least in the West. The debacle of California's experiment, which may end up costing the state as much as $30 billion and has led to criminal inquiries into alleged price manipulation, looms large as Californians try to return to a regulated market.
But other states are backing away as well. On Aug. 27, the Arizona Corporation Commission, which regulates that state's utilities, voted unanimously to halt a six-year drive toward deregulated electricity. The commission, whose vote keeps some of the state's major power providers from divesting themselves of their generating plants, said deregulation could expose consumers to market manipulation and price gouging.
Portland, Ore., meanwhile, is moving ahead with a plan to acquire, perhaps through condemnation, Portland General Electric, a utility owned by the bankrupt Enron Corporation. The utility, with 742,000 customers, infuriated many of them with a 40 percent rate increase last fall. Portland city officials say that if the utility were publicly run, it could offer energy at much lower prices.
Deregulation can still work, supporters say, if it is set up properly. But that is a hard sell in Montana, where people like to feel a personal connection to the institutions that govern their lives.
From his house above the backed-up Madison River near this little tourist town in far southern Montana, James Bond can see water become electricity as it courses through a small dam. Mr. Bond, a veterinarian, wonders if that power is going out of state while his utility bills go up.
"When I can see the dam from my house and I can't get the power from that dam," he said, "it doesn't make a whole lot of sense."
The dam here used to be owned by the Montana Power Company, once the state's dominant corporation. In earlier incarnations, Montana Power was part of a conglomerate that ran mines, timber operations and newspapers, and had an iron grip on political power under the big sky.
That sway over the Statehouse was still evident when, at the end of the 1997 legislative session, Montana Power, looking to get out of the stodgy, regulated utility business, pushed through a deregulation bill, which made its assets more attractive to prospective buyers. The company said the public would benefit, with lower costs and more consumer choices.
The Legislature, made up mostly of farmers, ranchers and small-business owners, approved the measure with little hesitation. "The dining, the free drinks, the contributions — it all paid off when Montana Power called in its chips," said Hal Harper, a former speaker of the Montana House, who has been both a Republican and a Democrat but is now out of politics. "We're stuck with the bill."
Montana Power sold its generating plants to the PPL Corporation of Allentown, Pa., a company that sells power in more than 40 states and numerous countries. The once-thriving Montana Power Company got into the Internet service provider business, becoming Touch America, and has nearly collapsed with the implosion of the telecom industry, losing more than 90 percent of its market value.
The first shock of deregulation here was felt by business. In a fourth year of increases, power prices soared to unheard-of levels in 2001. Paper companies, mines and other industries that provide some of Montana's few good-paying jobs began to close or lay off workers because they could not afford to pay their electricity bills.
For residential consumers, whom the deregulation law shielded from the first four years of price jumps, bills started to go up this summer, and will rise again next summer.
Owners of the dams, backed by some union officials and the leaders of the Republican-controlled state government, are challenging the initiative in court while raising nearly $1 million to build a political campaign against it. That sum is huge in a state like Montana, where the cost of advertising is low, and where supporters of the initiative expect to have little money.
The raw emotion of the issue has already made its way into court filings. "The prospect of some Montana residents having to choose between heating and eating is not so unrealistic," Jim Reynolds, a lawyer for a group called Dam Cheap Power, wrote in support of allowing voters to have their say.
The dams' owners — in addition to PPL, a Spokane company named Avista could lose a dam — are leaving nothing to chance. In focus groups, they have found that people are very upset over deregulation but also do not like the idea of government's condemning private property, said Aidan Myhre, a spokeswoman for Taxpayers Against Initiative 145.
"Property rights works in our favor, but deregulation is just not popular," Ms. Myhre said. She said her side would argue that the state could not run power plants efficiently and that Montana could not sit on the sidelines of global business.
"We live in a global environment, and Montana is not this little cell that can determine its own destiny," she said. "Besides, there is no guarantee that if the state were to take over the dams, they could offer lower prices."
Though few polls yet give a good indication of where the electorate stands, Ms. Myhre said the dams' owners would have to "educate people."
A yes vote would not automatically lead to state purchase of the dams. It would set up a commission to determine whether it made sense for the state to buy the dams and run them. If so, the state would either negotiate to buy them or condemn them and pay market value for them. Revenue bonds of as much as $500 million would finance the acquisition.
The initiative's supporters cite the Montana Constitution, which says all rivers in the state are to be used for the benefit of Montanans.
"A river running downhill — there's no cheaper power in the world, because there are no fuel costs," said State Senator Ken Toole, a Democrat who is a leader of the buy-the-dams campaign. "We have this in our backyard. Yet we went from some of the cheapest power rates in the nation to some of the highest."