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July - Duke Energy Employee Advocate

Deregulation - Page 5 - 2003

A corporation that is not bound by strict laws is a ruthless, dangerous force. - Employee Advocate

IBEW on the Blackout

IBEW – Press Release - August 23, 2003

WASHINGTON, Aug. 19 /U.S. Newswire/ -- The following is a statement of International Brotherhood of Electrical Workers president Edwin D. Hill on the largest power failure in U.S. history :

Last week's power failure for 50 million Americans may well have stemmed from an overworked transmission system, a severe reduction of the work force and deferred equipment maintenance-all developments that followed deregulation.

Deregulation promised benefits from competitive markets, but it also brought uncertainty, which froze investment in new construction. In the 10 years since utility deregulation was first introduced, power companies have built or updated very few new transmission lines. Today demand continues to climb, but transmission investment in 2000 was less than half of what it was in 1975. In general, training programs for workers have been reduced or suspended indefinitely. The work force has been reduced by one third in the past 10 years, with an obvious impact on maintenance.

In fact, deferred maintenance has become the hallmark of deregulation. In order to maximize profitability, maintenance schedules in many utilities have been extended from six months to two or three years, greatly adding to system risk. Because electricity is often generated hundreds of miles from its user, the system is increasingly interconnected. When one or two elements of such a highly integrated system break down, the result is cascading blackouts like the one that occurred last week.

Deregulation provides incentives to a utility company to sell electricity across state and national boundaries, but it is transmitted on a grid initially designed to deliver only to its local customers. What happened last week is bound to happen again, given the growing demand for electricity.

In recent years, deregulation has caused blackouts in the West and manipulation of power markets by the likes of Enron and others. If we continue down this road, the fallout will become national. Power outages will become a way of life.

It is a cause of grave concern that utility deregulation has turned the once reliable, self-sustaining utility business into a marketplace where profit-taking trumps reliability. Consumers, businesses and industries are more at risk since electricity was redefined as a commodity rather than as a necessary service.

The IBEW urges policy makers to conduct an independent, engineering-based investigation into the blackout. Our modern electricity-dependent society should not be left to the mercies of today's deregulated utilities.

The IBEW represents 220,000 utility workers in the United States and Canada.

Deregulated Power Price Soars in Montana

Employee Advocate – - August 23, 2003

The New York Times reported that Montana used to have some of the lowest power rates in the Northwest. Some lawmakers now say that the rates in Montana are among the highest in the region. Electric deregulation has struck again.

Deregulation has forced some companies out of business because of the high power prices. Other companies have laid off employees. Deregulation has also brought about large lay offs in the utility industry.

People miss the days of regulation and are wondering what hand deregulation played in the recent blackout.

The deregulation experiment began in Montana with the legislation passed in 1997. That’s the same year that Duke Energy employees were stuck with a cash balance pension plan.

Deregulation has brought NorthWestern low stock prices, shareholder lawsuits,and possible bankruptcy.

Since deregulation, the prices of electricity and natural gas have soared in the state.

Montana Power executives suckered residents into deregulation by promising benefits in electricity and natural gas prices. Someone may be benefiting, but it is not the ratepayers or the employees in Montana.

The Road to Ruin

N. Y. Times – by Paul Krugman - August 20, 2003

(8/19/03) - We still don't know what started the chain reaction on Thursday. Whatever the initial cause, however, the current guess is that a local event turned into an epic blackout because the transmission network has been neglected. That is, the power industry hasn't spent enough on the control systems and safeguards that are supposed to prevent such things.

And the cause of that neglect is faith-based deregulation.

In the past, electric power was considered a natural monopoly. It was and is impractical to have companies competing either to wire up homes and businesses, or to build long-distance transmission lines. Because effective competition was impossible, power companies were given local monopolies, and regulated to keep them from exploiting customers.

These regulated monopolies took responsibility for the whole system — transmission and distribution as well as generation. Then came the deregulation movement. It argued that a competitive market could be created in power generation (though not in transmission and distribution), and in much of the country utilities were forced to sell off their power plants.

In fact, effective competition has been elusive even in power generation. In California, deregulation led to one of history's great policy disasters: energy companies drove up prices by creating artificial shortages. This plunged the state into a crisis that ended only after much of its electricity supply was locked up in long-term contracts, and price controls were imposed on the rest.

Incidentally, there seems to be a weird reluctance to face up to what happened in California. Since the blackout, I've seen national news reports attributing California's woes in part to environmental restrictions, while ignoring the role of market manipulation. Huh? There's no evidence that environmental restrictions played any role; meanwhile, even the Federal Energy Regulatory Commission, which strongly backs deregulation, has concluded that market manipulation played a major role. What's with the revisionist history?

Anyway, market manipulation aside, energy experts have long warned that deregulation would lead to neglect of the grid. Under the old regulatory system, power companies had strong incentives to ensure the integrity of power transmission — they would catch the flak if something went wrong. But those incentives went away with deregulation: because effective competition in transmission wasn't possible, the companies providing transmission still had to be regulated. But because regulation limited their profits, they had little financial incentive to invest in maintaining and upgrading the system. And because of deregulation elsewhere, responsibility was diffused: nobody had a strong stake in keeping the system reliable. The result was a failure not just to add capacity, but to maintain and upgrade capacity that already existed.

These experts didn't necessarily oppose deregulation; their point was that deregulation could lead to disaster unless accompanied by policies not just to keep the grid reliable, but to expand it. (To make competition possible, a deregulated system needs considerably more transmission capacity than one based on regulated monopolies.) But their warnings weren't taken seriously; politicians and deregulation enthusiasts simply had faith that somehow "the market" would take care of the problem.

Four years ago, Paul Joskow of M.I.T. told FERC: "Proceeding on the assumption that, at the present time, `the market' will provide needed network transmission enhancements is the road to ruin." And so it was.

Have we learned our lesson? Early indications are not promising. President Bush now says that "our grid needs to be modernized . . . and I've said so all along." But two years ago Tom DeLay blocked a modest Democratic plan for loan guarantees for system upgrades, calling it "pure demagoguery." And press reports say that despite the blackout, the administration will bow to pressure from Senate Republicans and put on ice the only part of its energy plan that had any relevance to the blackout, a FERC proposal for expanded oversight of the transmission system.

This nation needs to invest billions in its power grid, yet given recent history, it's crucial that this investment not be simply another occasion for energy-industry profiteering. Somehow, I'm not optimistic.

‘Voluntary Compliance’

Employee Advocate – - August 19, 2003 reported that lawmakers, industry figures and regulators have had four decades of warnings about the transmission problems that likely caused the blackout. Utilities have resisted regulation of the grid, fearing losing control. The utilities prefer voluntary standards, with no penalties for violations.

This is working out about as well as the “voluntary pension system.” Corporations like a pension system where they can make big pension promises, and then renege on them 30-years later. A corporation that is not bound by strict laws is a ruthless, dangerous force.

Ralph Cavanagh, Natural Resources Defense Council program director, said “The warning signs were clear to us in 1998 and have become even clearer since then. The traffic cops in this system have no power to issue tickets for those violating how much you can load into the system. We warned that the transmission grids needed stronger rules of the road. Either it was someone violating the rules or there were multiple, simultaneous failures of the system."

Deregulation of nation's energy industry has only added to the problems. The Bush energy bill is a joke. Its only real purpose to hand a blank check to energy corporations and free them from complying with existing laws. It is payback for campaign contributions.

Power Plant Explosion Debate

Employee Advocate – - August 19, 2003

The outage debate is getting more unreal by the minute. There is a debate over an alleged explosion at a FirstEnergy coal-fired plant. The debate is not over the magnitude of the explosion, what caused it, or if it cause the blackout. The debate is over whether there was an explosion or not!

People may debate the possible properties of undiscovered sub-atomic particles. But good grief, people should know if there was an explosion or not!

When such improbable stories start hitting the press, you know that someone’s apple cart has been tipped over. When cover stories are made up on the fly, they often sound ridiculous.

Get this - Eastlake Mayor Dan DiLiberto said that there was and explosion; FirstEnergy said that there was no explosion! How would the mayor know more about what happened at the power plant than the owners? That is unless the mayor was tipped off and the company is lying. Some may ask: “Would energy executives lie?”

The mayor and many other officials are calling for an investigation. Rest assured that there are some parties that do not want any kind of an investigation.

U.S. Rep. Dennis Kucinich said “Why in the world would anyone think that poor maintenance is limited to Davis-Besse… Look at the sorry record of maintenance at Davis-Besse, resulting in a reactor with a hole in its head. This utility has already threatened the Midwest with its maintenance and operation of a nuclear power plant”

Congressman Kucinich blames deregulation of the electric power industry, which led to cost-cutting in maintenance.

Residents said the plant vented fly ash three times on Thursday. The mayor said the explosion led to a release of fly ash and that the release should happen only at night.

Eastlake Police Department cars had so much ash dumped on them that they had to be taken to a car wash.

Mary Beth Asenjo said “My daughter said it looked like a snowstorm in the middle of August. I was just glad my kids were inside.”

Dozens of homes were coated with ash. Streets and driveways were marked with “ash tracks,” from cars crushing the powdery pellets.

Bob horn had to spray his parents’ roof to get rid of the ash. He said “I washed the cars yesterday, and already it's bad again. Soon it'll start eating the paint.”

FirstEnergy maintains the fly ash release was not that unusual and that there was no explosion.

Deregulation Ripples

Employee Advocate – - August 19, 2003

The widespread power failure has put the ill effects of electric deregulation back in the spotlight, according to the New York Times. Sheldon Silver, speaker of the State Assembly, called for blackout hearings even before the lights came back on.

Deregulation has caused contention between Mr. Silver and Governor George E. Pataki since 1996. Mr. Pataki brought in deregulation through the back door, without the Legislature’s approval! Things that are too putrid to face open scrutiny will often find there way to approval through the back door. But something that’s really rotten will continue to stink, in spite of all attempts to cover it up.

Assemblyman Paul D. Tonko, chairman of the energy committee, pointed out that transmission line spending dropped drastically under deregulation – from $304 million to $90 in one year.

Mr. Tonko said “It is a frail system at best.”

Maureen O. Helmer, former chairwoman of the Public Service Commission, blames corporate scandals in the energy sector for discouraging investment.

Assemblyman Paul A. Tokasz said “We understand free trade, but quite frankly the public safety is at issue here.”

All Blackout States Were Deregulated

Employee Advocate – - August 17, 2003

The effect of electric deregulation is suspected as the cause of, or a contributor to, the massive Northeast blackout, according to the Associated Press. Under a regulated market, money must be spent to make the system reliable. Under deregulation, corporations can spend money where they think they will make a killing and let the rest of the system fall apart.

Charles Brennan, Public Utility Law Project attorney, said of deregulation “It has resulted in an environment in which generators have a great deal more freedom to act without a regulatory authority overseeing their actions. That's the same for the construction and maintenance of the grid.”

Paul Tonko, chairman of the state Assembly's energy committee, feels that New York moved too far, too fast in removing oversight on electric and natural gas utilities. Mr. Tonko believes that these errors caused the capacity and maintenance of the electrical transmission system to suffer.

Deregulation was designed to get utilities in a position to rake in the big money at the expense of everyone else. The promise of consumer savings was only the bait to snare the victims. How did the deregulation mess ever get this far? Two reasons: Massive corporate lobbying and political contributions.

The promised lower prices and energy choices never materialized for most ratepayers in New York.

Rob Sargent, National Association of State Public Interest Research Groups policy analyst, believes that deregulation is "potentially a culprit" in the blackouts.

Mr. Sargent said “Look at a map where the states were most affected by this. ... All these states are deregulated."

Anna Aurilio, legislative director for the U.S. Public Interest Research Group, said “We do not need any more deregulation of the energy grid.”

As expected, those who stand to profit from deregulation cannot see any problems with it. As the lights go out and power rates quadruple, they continue to say: “No problems here.”

Power Outage Traced to Dim Bulb in White House

The Observer (UK) - by Greg Palast - August 16, 2003

The Tale of The Brits Who Swiped 800 Jobs From New York, Carted Off $90 Million, Then Tonight, Turned Off Our Lights

(8/15/03) - I can tell you all about the ne're-do-wells that put out our lights tonight. I came up against these characters -- the Niagara Mohawk Power Company -- some years back. You see, before I was a journalist, I worked for a living, as an investigator of corporate racketeers. In the 1980s, "NiMo" built a nuclear plant, Nine Mile Point, a brutally costly piece of hot junk for which NiMo and its partner companies charged billions to New York State's electricity ratepayers.

To pull off this grand theft by kilowatt, the NiMo-led consortium fabricated cost and schedule reports, then performed a Harry Potter job on the account books. In 1988, I showed a jury a memo from an executive from one partner, Long Island Lighting, giving a lesson to a NiMo honcho on how to lie to government regulators. The jury ordered LILCO to pay $4.3 billion and, ultimately, put them out of business.

And that's why, if you're in the Northeast, you're reading this by candlelight tonight. Here's what happened. After LILCO was hammered by the law, after government regulators slammed Niagara Mohawk and dozens of other book-cooking, document-doctoring utility companies all over America with fines and penalties totaling in the tens of billions of dollars, the industry leaders got together to swear never to break the regulations again. Their plan was not to follow the rules, but to ELIMINATE the rules. They called it "deregulation."

It was like a committee of bank robbers figuring out how to make safecracking legal.

But they dare not launch the scheme in the USA. Rather, in 1990, one devious little bunch of operators out of Texas, Houston Natural Gas, operating under the alias "Enron," talked an over-the-edge free-market fanatic, Britain's Prime Minister Margaret Thatcher, into licensing the first completely deregulated power plant in the hemisphere.

And so began an economic disease called "regulatory reform" that spread faster than SARS. Notably, Enron rewarded Thatcher's Energy Minister, one Lord Wakeham, with a bushel of dollar bills for 'consulting' services and a seat on Enron's board of directors. The English experiment proved the viability of Enron's new industrial formula: that the enthusiasm of politicians for deregulation was in direct proportion to the payola provided by power companies.

The power elite first moved on England because they knew Americans wouldn't swallow the deregulation snake oil easily. The USA had gotten used to cheap power available at the flick of switch. This was the legacy of Franklin Roosevelt who, in 1933, caged the man he thought to be the last of the power pirates, Samuel Insull. Wall Street wheeler-dealer Insull created the Power Trust, and six decades before Ken Lay, faked account books and ripped off consumers. To frustrate Insull and his ilk, FDR gave us the Federal Power Commission and the Public Utilities Holding Company Act which told electricity companies where to stand and salute. Detailed regulations limited charges to real expenditures plus a government-set profit. The laws banned power "trading" and required companies to keep the lights on under threat of arrest -- no blackout blackmail to hike rates.

Of particular significance as I write here in the dark, regulators told utilities exactly how much they had to spend to insure the system stayed in repair and the lights stayed on. Bureaucrats crawled along the wire and, like me, crawled through the account books, to make sure the power execs spent customers' money on parts and labor. If they didn't, we'd whack'm over the head with our thick rule books. Did we get in the way of these businessmen's entrepreneurial spirit? Damn right we did.

Most important, FDR banned political contributions from utility companies -- no 'soft' money, no 'hard' money, no money PERIOD.

But then came George the First. In 1992, just prior to his departure from the White House, President Bush Senior gave the power industry one long deep-through-the-teeth kiss good-bye: federal deregulation of electricity. It was a legacy he wanted to leave for his son, the gratitude of power companies which ponied up $16 million for the Republican campaign of 2000, seven times the sum they gave Democrats.

But Poppy Bush's gift of deregulating of wholesale prices set by the feds only got the power pirates halfway to the plunder of Joe Ratepayer. For the big payday they needed deregulation at the state level. There were only two states, California and Texas, big enough and Republican enough to put the electricity market con into operation.

California fell first. The power companies spent $39 million to defeat a 1998 referendum pushed by Ralph Nadar which would have blocked the de-reg scam. Another $37 million was spent on lobbying and lubricating the campaign coffers of the state's politicians to write a lie into law: in the deregulation act's preamble, the Legislature promised that deregulation would reduce electricity bills by 20%. In fact, when in the first California city to go "lawless," San Diego, the 20% savings became a 300% jump in surcharges.

Enron circled California and licked its lips. As the number one contributor to the George W. Bush campaigns, it was confident about the future. With just a half dozen other companies it controlled at times 100% of the available power capacity needed to keep the Golden State lit. Their motto, "your money or your lights."

Enron and its comrades played the system like a broken ATM machine, yanking out the bills. For example, in the shamelessly fixed "auctions" for electricity held by the state, Enron bid, in one instance, to supply 500 megawatts of electricity over a 15 megawatt line. That's like pouring a gallon of gasoline into a thimble -- the lines would burn up if they attempted it. Faced with blackout because of Enron's destructive bid, the state was willing to pay anything to keep the lights on.

And the state did. According to Dr. Anjali Sheffrin, economist with the California state Independent System Operator which directs power deliveries, between May and November 2000, three power giants physically or "economically" withheld power from the state and concocted enough false bids to cost the California customers over $6.2 billion in excess charges.

It took until December 20, 2000, with the lights going out on the Golden Gate, for President Bill Clinton, once a deregulation booster, to find his lost Democratic soul and impose price caps in California and ban Enron from the market.

But the light-bulb buccaneers didn't have to wait long to put their hooks back into the treasure chest. Within seventy-two hours of moving into the White House, while he was still sweeping out the inaugural champagne bottles, George Bush the Second reversed Clinton's executive order and put the power pirates back in business in California. Enron, Reliant (aka Houston Industries), TXU (aka Texas Utilities) and the others who had economically snipped California's wires knew they could count on Dubya, who as governor of the Lone Star state cut them the richest deregulation deal in America.

Meanwhile, the deregulation bug made it to New York where Republican Governor George Pataki and his industry-picked utility commissioners ripped the lid off electric bills and relieved my old friends at Niagara Mohawk of the expensive obligation to properly fund the maintenance of the grid system.

And the Pataki-Bush Axis of Weasels permitted something that must have former New York governor Roosevelt spinning in his wheelchair in Heaven: They allowed a foreign company, the notoriously incompetent National Grid of England, to buy up NiMo, get rid of 800 workers and pocket most of their wages - producing a bonus for NiMo stockholders approaching $90 million.

Is tonight's black-out a surprise? Heck, no, not to us in the field who've watched Bush's buddies flick the switches across the globe. In Brazil, Houston Industries seized ownership of Rio de Janeiro's electric company. The Texans (aided by their French partners) fired workers, raised prices, cut maintenance expenditures and, CLICK! the juice went out so often the locals now call it, "Rio Dark."

So too the free-market British buckaroos controlling Niagara Mohawk raised prices, slashed staff, cut maintenance and CLICK! -- New York joins Brazil in the Dark Ages.

Californians have found the solution to the deregulation disaster: re-call the only governor in the nation with the cojones to stand up to the electricity price fixers. And unlike Arnold Schwarzenegger, Gov. Gray Davis stood alone against the bad guys without using a body double. Davis called Reliant Corp of Houston a pack of "pirates" --and now he'll walk the plank for daring to stand up to the Texas marauders.

So where's the President? Just before he landed on the deck of the Abe Lincoln, the White House was so concerned about our brave troops facing the foe that they used the cover of war for a new push in Congress for yet more electricity deregulation. This has a certain logic: there's no sense defeating Iraq if a hostile regime remains in California.

Sitting in the dark, as my laptop battery runs low, I don't know if the truth about deregulation will ever see the light --until we change the dim bulb in the White House.

See Greg Palast's award-winning reports for BBC Television and the Guardian papers of Britain at Contact Palast at his New York office:

Greg Palast is the author of the New York Times bestseller, "The Best Democracy Money Can Buy" (Penguin USA) and the worstseller, "Democracy and Regulation," a guide to electricity deregulation published by the United Nations (written with T. MacGregor and J. Oppenheim).

FERC Wants More Whistleblowers

Employee Advocate – - July 21, 2003

A U.S. Federal Energy Regulatory Commission official has asked for utility engineers to blow the whistle on market manipulators, according to Dow Jones. FERC Director of Market Oversight and Investigations William Hederman made the appeal.

The comments were made at a meeting of the Power Engineering Society of the Institute of Electrical and Electronics Engineers in Toronto.

Mr. Hederman said “There is a strong need to restore public confidence in almost every aspect of the electric power industry. Power engineers should take an active role in this restoration.”

Maybe any new whistleblowers will not be treated as shabbily as the Duke Energy whistleblowers were. The three Duke whistleblowers said that FERC was not interested in what Duke Energy did, but only asked questions about them. FERC then threatened them with prison if they talked about the matter.

The whistleblowers broke their silence after more incriminating energy evidence emerged. They lost all faith in FERC and are pursuing a private lawsuit.

Intimidation by FERC Alleged

Deregulation Costs More in Baltimore

Employee Advocate – - July 21, 2003

The electric deregulation ploy is going to cost Maryland residents, according to the Associated Press. Part of the game is to artificially lower the power rates for a few years, and then take off the caps. The ratepayers are told that when the price caps come off, energy companies will be fighting each other to sell them electricity at giveaway prices. That’s the bait, but all customers get is the hook.

Maryland residents will begin paying MORE for electricity next year. The competition among power companies is meager.

What have we learned boys and girls? When energy companies lobby for changes, it will always be to benefit them – never anyone else.

People's Counsel Michael J. Travieso said “Energy prices have been real volatile and rates have gone up in other places around the country. Our residential customers have been insulated from that. People don't really appreciate the fact that their rates have been frozen for several years. The premise was that during that time period, a competitive market would develop for residential customers and they would have a lot of choices. That hasn't developed. When those rate caps come off, people will notice. Once citizens become irate and they see that deregulation is the cause of it, there's going to be a panic reaction and you'll see all sorts of wild proposals from the legislature about turning back deregulation. We need to do everything we can to head off impending problems.”

The people of Maryland are not interested in deregulation games. Less that 4 percent have switched energy companies.

New High Rates in New York

Employee Advocate – - July 21, 2003

The New York Times reports that electric rates will increase in New Jersey. Could you possibly imagine why? In a word, it is – “deregulation.”

A rate increase of 15.1 percent has been approved. It is the same story. Customers were promised cheap electricity under deregulation. They got suckered in with a few years of price controls. When the price controls go off, the rates go up.


The Seattle Times – Editorial - July 2, 2003

(7/1/03) - The Federal Energy Regulatory Commission last week ignored its legal mandate to ensure just and reasonable energy rates.

FERC handed down several decisions, including affirming the energy crisis of two years ago was the product of market shenanigans by Enron and others. But among the most disappointing for the Northwest was a decision to uphold long-term energy contracts negotiated during the energy crisis at rates that are abominably high by current market rates. Another was FERC's refusal to permit Washington utilities to seek up to $500 million in overpayments during the crisis.

In other words, the cads win — and continue to profit at the expense of energy consumers, both residential and business.

In Washington, Snohomish PUD had hoped to get out of long-term contracts, including one for $200 million, and for legal verification that it did not have any obligation to the now-bankrupt Enron for a contract Snohomish canceled. (Enron has sued.) Meanwhile, California had hoped to renegotiate about $12 billion in long-term contracts.

That decision flouts the agency's statutory responsibility because it permits unjust and unreasonable prices to stand.

As Commissioner William Massey noted in an angry dissent: "Protecting contracts entered into in this horribly tainted environment violates the Federal Power Act's forceful declaration that contracts are absolutely unlawful and must be reformed if not just and reasonable."

Unfortunately, the Democrat was one of only three votes. Chairman Pat Wood and Commissioner Nora Brownell, both Republicans, don't have the same allegiance to the value of protecting consumers over those with the ill-gotten gains in pocket.

Enron Gets the Death Penalty

Employee Advocate – - June 26, 2003

FERC Votes to Revoke Enron's Energy-Trading Privileges

Enron has been sentenced to the death penalty, according to Dow Jones. The Federal Energy Regulatory Commission has responded to findings of widespread gaming and possibly other types of manipulations of the energy markets in 2000 and 2001.

FERC revoked Enron’s authority to sell electricity at market prices. Enron’s ability to sell natural gas will also be curtailed.

FERC Chairman Pat Wood said “This is the first time the commission has imposed the so-called death penalty."

Hey, it could not have happened to a more deserving bunch of guys!

Other energy companies are not off the hook either. Sixty of them have been asked to prove why they should not have to make restitution. FERC intends to finish the probe by January.

Some firms have pleaded innocent. Some executives have claimed to have been completely exonerated by FERC. That’s all very interesting, seeing as how the investigation will not even be complete before next year!

Taking the Anti-Enron Pledge

Employee Advocate – - June 24, 2003

More and more energy companies are swearing off Enron-like activities. And, why not? Following Enron’s example could lead to bankruptcy or prison.

The more honest corporations make a clean break. They announce to the world that they are renouncing the phony deregulation game. They make it clear that the opposite path will be followed.

The more sleazy companies, or arrogant CEO’s, do not want to admit that they have been Enron fools. They are trying to slowly morph back into regulated utilities. They are hoping that no one will notice that they have been dabbling in very shady areas. Perhaps some just have difficulty telling the truth about anything.

The Saint Paul Pioneer reports that Xcel Energy has learned its lesson and wants to get back to the basics. NRG was Xcel’s problem child. The problem is that many energy companies have let their basic, regulated businesses go to seed while they chased the deregulation, energy trading rainbow.

Robert Burns is a senior research specialist with the National Regulatory Research Institute at Ohio State University. He said “When utilities diversify, sometimes that does detract them away from their core business. The reason it does is the potential to earn a higher rate of return is in the diversified business, but the reason that potential is there is the venture is often riskier.”

Risk – you cannot get away from it. Anytime the potential for reward is increased, so is the risk of financial ruin. You would think that the energy executives would have known better than to have chased the deregulation bubble. The lust for fast, easy money overpowered more rational thinking in dozens of cases.

Today, all of the Enron followers know the game is over. Some are willing to admit it. Others foolishly think that the plain facts can be hidden. That is the type of wishful thinking that caused them to become ensnarled in the first place.

Just as risk cannot be ignored, falling on one’s face cannot be successfully denied. So, we have a situation where some CEO’s, with already paper thin credibility, are denying the obvious. Do they think that they are actually inspiring confidence? It’s a riot!

Xcel may be trying to put perfume on a pig. As the parent company of NRG, they have said that customers are not experiencing any declines in service due to recent problems. Current and former employees have disputed that claim. On any day of the week, the credibility of the average employee is about 100 times greater than that of the typical CEO.

Robert Burns said that regulated utilities like Xcel, Westar, Cinergy, Pinnacle West, Duke, Aquilla and others invested heavily in non-regulated ventures, most of which lost money. In some of those cases, the utilities sought to shift the debt to the regulated company's ratepayers.

Charles Acquard, executive director of the National Association of State Utility Consumer Advocates, said “Customer service has certainly taken a beating in these competitive times.”

Jim Owen, Edison Electric Institute spokesman, said “I think there's no question that across the industry, companies are saying, 'let's focus more than perhaps we did on basics, getting back to the core mission of what we had been doing before'.”

Still, some are admitting and some are yet denying.

The recent Xcel Energy shareholder meeting did not go too well for the suits. Shareholders let their displeasure be known about the bankruptcy of the NRG subsidiary, the poor performance of stock, and the dividend being cut in half.

Shareholder Gerald Armstrong wanted CEO Wayne Brunetti fired. Others wanted the whole board replaced. The crowd loved it.

Mr. Armstrong told the CEO “I join Minnesota's attorney general in calling for your resignation.”

A shareholder proposal to elect all directors annually passed by 51 percent, which is as good as 100 percent.

CEO Brunetti said that he took full responsibility for the problems.

Now that he has come clean, he can concentrate on running the business. Others will continue to waste energy futilely trying to pretend that no mistakes were ever made.

Trader Faces Criminal Conspiracy

Employee Advocate - - June 21, 2003

The Enron death spiral continues, according to the Wall Street journal. Energy Trader John M. Forney has been charged with criminal conspiracy and wire fraud by federal prosecutors. He was arrested and handcuffed by FBI agents. Timothy Belden and Jeff Richter have already been accused of manipulating energy prices.

Enron was the leader in the electric deregulating and price manipulating game. It stands to reason that the dirtiest hands would be found there. Other energy companies are backpedaling and denying. It is doubtful that all of their hands are lily white.

Dumping Deregulation in California

Employee Advocate – - June 13, 2003

California Governor Gray Davis is eager to pull the plug on electric deregulation, according to the Orange County Register. He was said to have used the strongest language that he has used to date in condemning deregulation. That is noteworthy, because the governor has been using some very strong language about deregulation for years!

Governor Davis has much experience dealing with deregulated power and it has all been negative. He learned the hard way how the game is played.

He made these comments to the San Francisco Chronicle: “We saw what a disaster deregulation was over the last two years. And while in theory, scores of companies competing to sell you electricity might reduce your rates, in reality they all want to drive each other out of business and be the only suppliers in town, and then your rates will go up.”

Sen. Joseph Dunn, D-Santa Ana, has introduced a tough bill to reregulate the power market. It would tie prices to productions cost and force companies to serve all at the lowest reasonable cost. It would also provide schools with the cheapest rates and kill the deregulation law. And more such bills have are in play.

Deregulation Fails in Ohio

Employee Advocate – - June 13, 2003

A report by the Public Utilities Commission of Ohio and comments in the Ohio News-Herald indicated that deregulation is being ignored by most electricity customers. Less that 20 percent have switched suppliers after two years of deregulation. That is not surprising. Deregulation wan never anything that the people wanted. Only energy CEO’s wanted it and lobbied for it.

One person who switched power companies realized a meager savings of less than one cent per kilowatt hour. That does not compare well with the risk. Consider that some California customers were charged quadruple rates!

David Hughes, executive director of utility watchdog Citizen Power, says deregulation has been a complete failure. The only hope he sees is repeal of the law.

Why You Pay More for Natural Gas

Employee Advocate - - June 6, 2003

The Kansas City Star suggests that you likely paid more for home heating due to energy traders manipulating natural gas prices. There is always a reason for everything. Often, the reason is not good. The people of California, who were forced to pay outrageous prices for electricity, were not the only victims of deregulation and energy trading.

What authority says natural gas prices were jacked up? The Federal Energy Regulatory Commission concluded natural gas indexes were artificially inflated. The indexes were used to set the price of natural gas across much of the United States.

The FERC report revealed:

  • A supervisor told a Dynegy trader “This is how the game was played, and you need to play it, too.”

  • Over a 15 month period, 99 percent of El Paso’s trades reported to the indexes were bogus.

  • An Aquila trader said that his boss instructed him to provide false price to the indexes.

William Hederman, director of the FERC Office of Market Oversight and Investigations, said "The price index systems of the last decade are mortally wounded, and I doubt anyone will mourn their passing."

‘We Lied’

Employee Advocate – – May 22, 2003

Electric deregulation is not so hot in the Northeast, according to the Wall Street Journal. Companies selling cheap power are not materializing, as promised, in Connecticut, Maryland, New Jersey or Massachusetts.

Rate caps will soon expire. Barry Perlmutter, senior analyst with the electric power division of the Massachusetts Department of Telecommunications and Energy, said "I just don't know what we'll do."

Sonny Popowsky, Pennsylvania Consumer Advocate, said "Retail competition has turned out to be more difficult than we thought.”

Ken Malloy, chief executive of the Center for the Advancement of Energy Markets, an independent think tank, said “I think the biggest mistake the procompetitive movement made was that we lied. Prices will not go down for every customer every time…”

Since the power crises, no state is moving forward with deregulation and California is going in the other direction!

It is amazing that people have placed themselves in such a predicament by trying to save a few pennies on electricity. While trying to save pennies, they may actually lose dollars and get poor service to boot!

The citizens cannot really be blamed for this one. Energy corporations duped the politicians. The politicians made the mistakes. The citizens will pay the price.

Some politicians gained big corporate contributions. Some energy corporations made big profits. All the citizens have to look forward to is cold showers.

Deregulation Flawed in Alberta

Edmonton Journal – May 13, 2003

(5/9/03) - After years of defending his government's deregulation of the electricity industry, Premier Ralph Klein conceded Tuesday there are serious problems and it may be time to establish an independent body to review the system.

"I don't mind admitting it's not gone well, of course it's not gone well," Klein said.

"If you look at a bill, and I've examined some bills, the cost of electricity itself is quite reasonable," Klein said.

"It's all these other things that are giving us a proverbial pain in the butt and are very hard to explain. The kind of bills I read where the cost of power is about $20 or $30 but the cost of peak load assessment or some damn thing like that is about $129. What is that?"

Klein said he asked government MLAs Tuesday morning if they wanted to drop deregulation or even adopt a provincially owned "socialist" system of electricity ownership and distribution. They declined.

The premier dropped his deregulation bombshell during a news conference in which he see-sawed between defending the controversial policy and acknowledging it is hurting his government. He seemed committed to stick with it, but anxious to find some way of smoothing out the bumps that keep popping up.

His comments grew out of the latest deregulation controversy. It began Monday when Energy Minister Murray Smith announced that over the next 20 years consumers will have to pick up the entire estimated $1-billion to $1.5-billion cost to construct power transmission lines from Fort McMurray to Calgary.

That reversed a decision by the Alberta Energy and Utilities Board last November, which ruled the companies and consumers should share the cost. It's unclear what Smith's decision will cost individual consumers.

The energy board's new administration advised Smith they couldn't get the needed investment dollars if companies had to pay half the money, Klein said.

In any event, transmission costs are eventually passed on to consumers, noted Epcor spokesman Martin Kennedy.

Earlier, the Alberta Liberals accused Klein of breaking a promise he made 13 months ago to make the companies pay the entire cost.

Klein said during question period he was only talking about circumstances in which companies were building transmission lines to export electricity out of the province. A transcript of his comments on April 10, 2002, appears to contradict that explanation.

"Who is to pay for future expansion of our transmission system within Alberta?" Liberal energy critic Hugh MacDonald asked Klein during question period that day.

Klein replied: "Those who generate and sell the electricity would be responsible for the transmission of that electricity and the construction of the lines."

Klein spokesman Gordon Turtle said Tuesday that MacDonald's question had been about exporting electricity. Turtle said the premier's reply only referred to transmission lines built for that purpose.

Asked to explain his earlier remarks, Klein said he meant companies would pay, but presumed they would pass the cost on to consumers.

Both opposition parties have attacked deregulation since power bills skyrocketed soon after its implementation on January 1, 2001. The government gave consumers at least $2 billion in rebate cheques.

The Liberals and New Democrats gleefully jumped on Klein's admission that deregulation is facing problems.

"It was bad ideology and it was followed by bad government policy," MacDonald said. "It is the consumers that have paid for this government's electricity deregulation mistake. We had a perfectly good system and now we don't."

New Democrat MLA Brian Mason said the government has just blinked and dubbed deregulation "a horror story that won't go away. All the stories about competition and low prices coming soon have no credibility anymore," he said.

"No one believes them anymore, including their own caucus."

Klein said caucus is divided on the issue of deregulation, with many MLAs facing extreme pressure in their ridings over rising bills.

"It's gone better in some areas of the province than it has in others, but I would be lying to you if I said that people like (Leduc MLA) Albert Klapstein, for instance, are happy. They're not. They're getting hammered by their constituents."

Klein said he's thinking about establishing what he termed an independent adjudication group to look at some of the problems, especially with billing.

"I think we need to have a good, wise look at it," he said. "I want to get it fixed and I don't think that throwing money at it ... is the answer."

Klein said he doesn't regret the decision to adopt electricity deregulation. "As far as I'm concerned, we were thorough, we took the right steps, we're into this thing, we're so far into it, it would cause a tremendous amount of damage if we tried to unravel it all."

The long-term objectives of the policy are right and when it was adopted the province was in danger of facing brownouts or even blackouts, he said. Those have been avoided, there's a lot more power generated and competition is growing, but bills are still too high.

Deregulation - Page 4 - 2003