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July - Duke Energy Employee Advocate

Deregulation - Page 6 - 2003

"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." - Ed Hill, IBEW International President

False Promises of Deregulation

Employee Advocate – – December 26, 2003

John Funk reported in The Plain Dealer that electric deregulation is not serving the people of Ohio. Lawmakers, with an eye on campaign contributions, and energy executives, with an eye on obscene profits, said that deregulation would be great.

They did not tell anyone that it would only be great for them. And even some of the deregulation promoters are now suffering from the monster of their own creation.

The spiel was that free-market competition would drive down electric rates. Energy traders and energy merchants would be competing with each other, resulting in cheap electric rates. It was all lies!

Certain individuals profited by millions of dollars. The public paid in higher rates and blackouts.

After three years of deregulation, few outside companies have come to Ohio. The cheap rates did not materialize for most customers.

David Hughes of Citizen Power, a watchdog group, said “We would rather the state re-regulate.”

The Fruits of Energy Trading

Employee Advocate – – December 21, 2003

The former head energy trader for Merrill Lynch pleaded guilty to stealing money, according to Reuters. How much did he take - $100,000 or $200,000? Daniel Gordon took $43 million for his efforts! There was also the matter of his superiors assisting in falsifying trading records. Some corporations attempt to lay all blame on the energy trader. But the books are easier to cook with a little help from the top.

Bear in mind that all criminals never get caught. Some are so slick that no one even knows that a crime was committed. The total cost of electric deregulation and energy trading will never be known. One thing is certain – the American public was the loser in the deregulation escapade. Some energy executives, politicians, and energy traders profited handsomely. A few were nabbed for criminal activities.

Deregulation did not make criminals out of honest men. It did provide a fertile ground for illegal activities to flourish. Deregulation appears to have been tailor made for con men. Some may say it was tailor made by con men. All the while, they were swearing that deregulation would lower the cost of electricity!

Mr. Gordon is facing 55 years in prison and over $1.25 million in fines. That’s not too bad. Steal $43 million dollars and get fined $1.25 million.

The 55 years in the pen would tend to put a damper on things. So, Mr. Gordon agreed to forfeit the $43 million.

The U.S. Securities and Exchange Commission also filed a civil suit against him alleging aiding Enron in fraud. A deal was struck with the SEC for a settlement without admitting any guilt. Money speaks loudest of all in the legal system.

‘Time Wounds All Heels’

Employee Advocate – – November 19, 2003

Dow Jones reported that virtually all large electric utilities are getting back to basics. Many have been burned by Enron envy. They were forced to mend their ways or die. Some died anyway.

Bank analyst Robert Rubin said “To me, 'back to basics' is nonsense. A company that is no longer spending more than it makes and no longer investing in things that it knows nothing about, that's just not doing dumb things... This is a sector not in the midst of a crisis, but still dealing with the aftershock of one. Mostly, it's a sector that wants to be left alone. Management wants to do and say just enough that investors don't beat them up anymore.”

Duke Energy was listed as a company that is still in trouble.

Analyst Paul Patterson said “Generally, these executives know what they're doing in their own field, but they've often done incredibly badly when they get into other businesses.”

Mr. Patterson does not think the lesson will last. He said “Time heals all wounds.”

Yes, and “time wounds all heels.”

Morro Bay Power Play

New Times (San Luis Obispo, CA) – By Jack McCurdy – November 12, 2003

Duke celebrates three years of inaction on its decision to build a new power plant in Morro Bay

(11/6/03) - This story has more twists and turns than a good pulp thriller, and the most intriguing tidbit is that the ending has yet to be written.

It all seemed so simple and even inevitable back in September of 1999 when Duke Energy filed its initial application to build a new power plant in Morro Bay and tear down the old one with its landmark towering smokestacks, now 46 years old. That application was abandoned by Duke and the present one was filed on Oct. 23, 2000, three years ago.

In 1999, the controversial project started out with fanfare and eager support from the City of Morro Bay (after it got money promises), hit a big hurdle when scientists discovered that the Duke-designed plant would kill significant numbers of fish, stalled when Duke took time out to design a habitat improvement plan to offset the fish kills, hit another roadblock when the California Coastal Commission (and other regulatory agencies) recommended against Duke's design, and then got preliminary approval last April from a committee of the California Energy Commission, which was roundly challenged.

Over the years this project has become a cause celebre and a symbol of how far industrial production will be allowed to invade the natural environment in this day and age. Sure, the existing plant has been operating on the northern shore of Morro Bay for almost half a century, but it was approved and built before there was a California Energy Commission or applicable environmental laws.

No one had any idea what effect, if any, it would have by sucking out hundreds of millions of gallons of water a day from Morro Bay, containing unknown quantities and species of marine life. We certainly do now.

It's one thing to site a power plant next to one of the most picturesque and wildlife-rich estuaries anywhere, but quite another to allow a new plant to be built given what we now know about its effects on the environment. Morro Bay wasn't a state and national estuary protected by law in 1957. It wasn't designated "environmentally sensitive habitat area" (ESHA) then because the Coastal Act, the source of that designation, wasn't even in existence.

The Coastal Act says you can't degrade ESHA, i.e. Morro Bay, period. No mitigation. No offsets. No compensation for damage.

How the Energy Commission is going to deal with that is unknown. Which illustrates why the Morro Bay case is so pivotal and can't be decided on precedent. It is the first power plant in California to be proposed using water from a specially-protected estuary.

Oddly enough, that point has been pretty much ignored in the Energy Commission's three-year review of Duke's application. The focus has been on how MUCH damage the proposed plant will cause and what to do about it.

Thousands of pages of testimony and reports have been generated by Duke, the Energy Commission, its professional staff, the Coastal Commission, the California Department of Fish and Game, the National Marine Fisheries Service and the Coastal Alliance on Plant Expansion, the nonprofit citizens group that I represent, over the last three years and even before. That's not to mention the Central Coast Regional Water Quality Control Board, which has been conducting its own review.

And nothing is decided. But some extremely important facts have been established for the first time.

A new plant would definitely damage the estuary by killing between 16% and 33% of the tiny fish and crab larvae that would be swept into the plant--if use of estuary water were allowed to cool the plant's big generators. Duke has steadfastly denied this is so. But all the agencies, even though they may disagree on what to do about this toll on marine life, agree.

Independent marine scientists documented it. Their water sampling identified about 12 species, which, they stressed, are only proxies for an untold number of other species. This is not to mention what have been called the "silent partners" of worms, phytoplankton and zooplankton that provide food for other fish and wildlife. Truly, a water board staff report said, the 16% to 33% loss would have a cascading effect throughout the ecosystem, also affecting bird life. No one knows the long-term prognosis of the estuary if this continued for the 50 years that a new plant would last.

As proposed by Duke, the plant would use 10% more water from the estuary at 90% operating capacity, which is what Duke forecast, further depleting fish stocks that once were abundant.

Another fact is that the plant doesn't have to use a steady flow of any kind of water for cooling. It could recycle a relatively small amount of fresh water, cooled by banks of fans in a process called "dry cooling." It's being used elsewhere in California and all over the U.S. and the world. Duke uses it in Nevada.

But Duke is pushing continued use of estuary water and payment of money to buy and improve habitat that ostensibly would reduce sedimentation in the bay and maintain water volume for marine life.

Dry cooling would cost more, if you don't count the cost of destroyed fish that use the estuary as a nursery. About 75% of the fish and shellfish that are commercially harvested come out of estuarine nurseries. Habitat improvement is an unproven way to offset fish lost in the plant's intakes, according to the Energy Commission staff.

Other coastal communities from Eureka to San Diego--where new power plants have been proposed or existing ones are candidates for replacement--are watching the Morro Bay case. The thinking is if it can happen there, marine life is not safe anywhere.

Decisions by the Energy Commission and the water board (Duke needs approval from both) now are expected next year. But even then, Duke's financial, regulatory and legal problems growing out of market manipulation charges from the California energy crisis could cause further delays. PG&E recently divulged a letter it says it has from Duke stating a new plant might not begin operating until 2011, even if it gets approvals next year. That's much farther in the future than Duke has ever predicted.

Another twist and no end in sight.

Jack McCurdy is a member of the Coastal Alliance on Plant Expansion and a former Pulitzer Prize-winning journalist for the Los Angeles Times.

Previous Morro Bay article:

Morro Bay Plant is Half Dead

Goosing FERC Over Energy Charade

The Seattle Times – Editorial – November 7, 2003

The U. S. Senate sent a strong, bipartisan signal that the kind of market shenanigans that contributed to the Western energy crisis should be illegal.

Sen. Maria Cantwell's amendment to the agriculture appropriations bill, approved by a 57-40 vote, clarifies Congress' intent about the national regulator's role in ensuring just and reasonable rates in energy markets.

The Federal Energy Regulatory Commission ruled in June that market manipulation by Enron and others created the energy crisis of 2000-01. On the same day, in a 2-1 vote, FERC commissioners upheld long-term energy contracts negotiated during the widespread charade.

That means utilities throughout the West still are on the hook for at least $500 million in long-term contracts with chief bad-actor Enron alone. Snohomish County PUD is trying to get out of $120 million in contracts with Enron, and several other utilities were victimized.

At the time, FERC's lone dissenter, Commissioner William Massey, scolded his colleagues:

"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."

He was right. Lawmakers should heed Thursday's Senate action and clarify Congress' intent with regard to FERC's role. House and Senate negotiators could add the provision to the energy bill in conference committee, or the House could approve a similar amendment to its agriculture appropriations.

This move is a no-brainer. What Enron and other market manipulators did was reprehensible and their victims should be given relief.

Morro Bay Plant is Half Dead

Employee Advocate – – November 7, 2003

The Coastal Alliance has been fighting the Duke Energy Morro Bay, California plant expansion for some years. The citizens of Morro Bay and Duke have not seen eye to eye on a number issues. The whole plant is not shutting down, but half of it is. reported that Duke will shut down two of Morro Bay’s four generators, indefinitely, and lay off a number of employees. The 1950’s vintage boilers are not very efficient.

The Morro Bay plant was part of the merchant energy scheme, that did not work out too well. It is another Duke white elephant. The old plant is costly to operate. The local citizens are opposed to a cheap upgrade, for various reasons. And, Duke has been unwilling to pay for a more costly upgrade. So, now the plant is half dead.

Previous Morro Bay article:

Duke and the California Recall Election

Duke’s Energy Manipulation Hearing

Employee Advocate – – November 5, 2003

Cox News Service reported that some energy companies have failed to settle energy manipulation charges with the Federal Energy Regulatory Commission. The companies that missed the Monday deadline will face a formal hearing on charges of charges of manipulating electricity prices during the California energy crisis.

First on the list of five errant companies is Duke Energy.

38 of the 43 accused firms have come clean or had the charges dropped. The holdouts must now appear before a FERC judge.

FERC will collect only $11 million in penalties if the settlements are approved. California officials have called the settlements "chump change" for billions of dollars in alleged overcharges.

FTCR Calls Schwarzenegger’s Hand

Foundation for Taxpayer and Consumer Rights – Press Release - October 15, 2003

Energy Deregulation Agenda Criticized

Santa Monica, CA -- Governor-elect Schwarzenegger must explain the substance of his private May 2001 meeting with Enron chief Ken Lay, the Foundation for Taxpayer and Consumer Rights (FTCR) wrote in a letter to Schwarzenegger today. FTCR, which was the state's most vocal critic of Governor Davis' handling of the energy crisis, said that if the governor-elect did not recount the meeting by the time of his inauguration, the group would ask state lawmakers to open an investigation to uncover the substance of the meeting, including any information that might further the state's efforts to return billions of dollars that taxpayers and consumers overpaid for electricity during the energy crisis.

"A meeting with the biggest corporate crook in recent memory, while he and his firm were in the midst of ripping off the state, should not be taken lightly," FTCR wrote. "As Governor, you must explain to Californians what you were doing at that meeting, what information Ken Lay shared with you and how the meeting has influenced your thinking on energy issues."

In addition to calling on Schwarzenegger to come clean about the meeting with Ken Lay, the group highlighted key aspects of the governor-elect's energy program that reflect an Enron-perspective on energy policy. In the letter, FTCR asked Schwarzenegger to rewrite his energy policy and remove his push for further energy deregulation.

The policy proposals, available online at, call for the expansion of California's failed experiment with electricity deregulation, including a dramatic ceding of power from state regulation to federal control. Schwarzenegger also proposes to dismantle the California Power Authority, which FTCR identifies as the "state's last line of defense against a real or manufactured energy shortage."

"Your proposal to revisit the deregulation experiment that exploded into California's single worst financial and public policy disaster directly contradicts the public interest in ending deregulation once and for all. Californians cannot afford another deregulation nightmare," FTCR wrote.

A copy of the full letter follows:

October 14, 2003

Governor-elect Schwarzenegger
Governor's Transition Office
Sacramento, CA 95814
Fax: 916/321-9301

Re: Energy crisis meeting with Ken Lay and the energy policy of your administration

Dear Governor-elect Schwarzenegger:

Your campaign tapped into Californians' anger, often highlighting the failure of leadership during the state's devastating energy crisis. This outrage over a lack of decisive leadership is what we at Foundation for Taxpayer and Consumer Rights articulated since the very early days of the crisis. What businesses and consumers needed most was a courageous leader to take on the power industry, yet the politicians were still defending their imprudent decision to deregulate the nation's largest electricity system.

While California faced blackouts and rate hikes, however, you were secretly meeting with Enron's Ken Lay, who had come to be widely reviled by Californians as the progenitor of deregulation and the head of the gang stealing billions from our businesses, consumers and taxpayers. It was his firm, you will recall, that developed the market manipulation strategies known by such names as Get Shorty, Death Star and Fat Boy. A meeting with the biggest corporate crook in recent memory, while he and his firm were in the midst of ripping off the state, should not be taken lightly.

As Governor, you must explain to Californians what you were doing at that meeting, what information Ken Lay shared with you and how the meeting has influenced your thinking on energy issues. Though you are just one week into your transition period, Californians should not be expected to wait too long for you to come clean about your private engagement with Ken Lay.

By the time of your inauguration, we expect you to provide a recounting of the substance of that May 17, 2001 meeting. If, for some reason, you should refuse, we will ask the State Legislature to investigate this meeting; we will call on lawmakers to subpoena you and other attendees in order to reveal your knowledge of the details surrounding the biggest financial rip-off in state history and Enron's efforts to continue that crime. In attending that meeting, you were privy to information inaccessible to the federal government, as Ken Lay has "taken the fifth" during investigations into his role in the crisis. Furthermore, Californians should have access to any information that might affect your decision as to whether or not you will fully commit to the fight for the billions of dollars stolen from this state by the energy firms that were manipulating our market, including Enron.

In addition to whatever you might have learned about Enron's strategies and goals at this meeting, Californians deserve to know the extent of Ken Lay's influence over your energy policy. A review of your proposals raises serious concerns that you share many of Ken Lay's views on deregulation. By the time of your meeting with Ken Lay, after three sets of rolling blackouts, the massive increase in consumer energy prices and the insolvency of the state's private utilities, every Californian knew that electricity deregulation was an unmitigated disaster. It had become indisputably clear that electricity is simply too vital to the economy and public safety to leave in the hands of unregulated corporations.

Your proposal to revisit the deregulation experiment that exploded into California's single worst financial and public policy disaster directly contradicts the public interest in ending deregulation once and for all. Californians cannot afford another deregulation nightmare.

In the energy program that you have made available online there are a number of points that deserve particular attention:

  • "Make markets work." The notion that electricity can be affordably and reliably served to consumers through a market defies both history and economic logic. Electricity is not like other products and services that are subject to market forces, because the public safety and economic necessity of electricity require consumers and most businesses to buy power at any price. This inelasticity of demand creates a strong incentive for unregulated power firms to withhold supplies and push electricity prices through the roof. Consumers and businesses will be best served by an energy policy that allows power producers to recover costs and, if the producer is a private entity, earn a reasonable regulated profit.

  • "Create a working wholesale power market based on the lessons from other states and the FERC standard market design." FERC has been rebuffed by Congress for trying to undermine states' rights to protect local consumers and businesses through this market design proposal. Support for FERC is at the grave expense of California's power to restrain excessive prices through state regulation. Instead, your proposal would leave consumers to fend for themselves in a world in which the appropriate price for electricity and transmission is whatever price "the market will bear." You should resist the Bush administration's pull to remove California's ability to set its own rules for energy generation and transmission. Your policies should protect the proven power of state regulation rather than accept the demonstrated weakness of federal deregulation.

  • "Affirm the commitment to private power by dismantling the California Power Authority (CPA)." Although, this agency had been woefully underutilized by the Davis Administration, it was created to ensure that the state of California has the ability to protect consumers against the failure of private energy firms and private markets to provide reasonably priced electricity. During the deregulation experiment in California, power firms balked on their promise to build plants. The CPA is the state's last line of defense against a real or manufactured energy shortage. The CPA should be protected and expanded to protect Californians from both the potential for future manipulation and the proven inability of private firms to meet the state's energy needs.

  • "Make sure there are adequate power reserves to prevent market manipulation." Reserves that are controlled by private firms (see above) are meaningless, because it ignores the industry's practices of illegal manipulation as well as collusive and non-collusive market gaming. Maintaining excess power capacity is both essential and entirely anathema to the theories of the free market and the reality of deregulation. Further, without the regulatory standards of state-based regulation, the price utilities charge for maintaining reserves could be excessive. Rather than creating an unworkable hybrid of mandated reserves and unregulated prices, California should follow a consistent system for maintaining reserves based on a comprehensive cost-of-service regulatory formula.

Also, it is notable that in your program you blame a "delay in raising rates" for utilities' financial troubles early in the crisis. Actually, the utilities' troubles were driven by the fact that Enron and other power companies were using the freedom from government oversight to gouge. Your criticism seems to imply that as Governor you would force the consumer to pay any price demanded by the unregulated energy firms rather than take on the energy industry and challenge behavior in the free market.

As a candidate you have promised to do things differently than the "politicians," but your assessment of the crisis and your proposals for California's energy future look very much like a return to the miserable policy of deregulation, which was foisted on California by a unanimous vote of Sacramento politicians in 1996 and signed by Governor Wilson, who is now among your chief advisors.

Yours is not a gutsy, independent proposal. It is a retread of special interest policy that will not only raise the ire of the voters who were fed up with special interest politics, but it will ensure the continued failure of a vital economic engine of our society.

While it is evident from both the proposals in your energy policy and recently discovered Enron e-mails, that you met with Ken Lay, it is equally clear that you have not considered the interest and needs of taxpayers, consumers and small businesses in this energy plan.

Californians elected you to be different. Coming clean about your meeting with Ken Lay is a first step and rewriting your energy policy would be the next one.


Douglas Heller
Senior Consumer Advocate

For more on the Schwarzenegger/big energy agenda, keep reading:

Schwarzenegger: The Deregulator

Employee Advocate – – October 12, 2003

Arnold Schwarzenegger is moving into his latest role, “The Deregulator,” according to Scoop. The Governor-elect of California wants to push the state towards more energy deregulation. No matter that customers almost always get burned under deregulation. Never mind that California ratepayers were burned the worst of all by deregulation. Deregulation cost California $70 billion and bankrupted the state’s largest utility. Not only that, but the General Accounting Office issued a report stating that Federal Energy Regulatory Commission (FERC) doesn’t have the power to protect consumers from the side effects of deregulation!

This political newbie feels that he can pull off what many experts could not. Hey, everything always worked out in the movies!

Senator Joseph Lieberman issued a statement that “Another year has gone by and FERC is still not capable of effectively protecting consumers.”

Apparently reporter Greg Palast was correct in his assertion that the Schwarzenegger for Governor drive was a concerted attempt to get the energy corporations off the hook. Schwarzenegger aides said that he will enter into quick (read cheap) settlements with energy companies accused of manipulating the market.

The Sacramento Bee reported that advisor to Governor Davis, Richard Katz, said “The governor has said he'll go to every court, every venue…(litigation) is the only process we have for getting justice for ratepayers.”

A Schwarzenegger aide said “It’s time to settle and move on.”

The governor-elect wants to make illegal aliens legal. He also feels that the workers of California receive too much compensation. And, he intends to weaken the California age discrimination laws.

To read more about the Schwarzenegger agenda, read the article below:

The Real Reason for the California Circus

Employee Advocate – – October 7, 2003

Unusual news is constantly being made in California. The 135 candidate governor recall vote is only the latest of such news. But Arnold Schwarzenegger running for governor sounded a bit weird, even for California.

No one can deny his success in his careers as one who lifts weights and recites scripts, written by others. The ability to recite scripts, written by others, could qualify one to become the President of the United States. That’s a chilling thought. It has happened before. Hollywood actor Ronald Reagan used the California governor’s office as a stepping stone to become President Ronald Reagan.

The one who currently occupies the White House has delusion of being a mighty warrior. Can you imagine Arnold Schwarzenegger in the Oval Office, shouting “bring ‘em on” or “I want ‘em dead or alive”? But Ronald Reagan had one thing that Arnold Schwarzenegger does not have. He was an American born citizen.

Mr. Schwarzenegger has obviously not been groomed from birth for a political career. That is not necessarily a bad thing. When one, who has led a freewheeling lifestyle, runs for office, it is expected that a few skeletons will be found in his closet. But no one expected to find a graveyard.

One would think that Mr. Schwarzenegger would have difficulty denying accounts obtained from his own mouth. But deny he did! The media did not have to dig too deeply to begin to exhume bones. Mr. Schwarzenegger cited his involvement in a gym group sexual indiscretion in a national magazine! When first confronted with the article, he claimed that he did not remember giving the interview.

Maybe he does have latent political aptitude. “I don’t recall,” has saved more bacon in Washington than any other line. Then he waffled. He said that he gave the interview, but that he was lying. In view of his responses, he may just be totally qualified to hold public office!

Mr. Schwarzenegger recently appeared on the Oprah Winfrey Show, along with his wife. How does one keep an oaf from digging his own grave, with his mouth, on national television? His wife did her best by holding her hand over his mouth.

Then the groping charges began to appear. The Los Angeles Times listed fifteen credible female witnesses, all claiming to have been groped by Arnold Schwarzenegger. One said he follower her into the bathroom and…well, you get the idea. He admitted guilt in some of the charges, saying “where there's smoke, there's fire.” He denied other charges or said that he did not remember.

There was some speculation, at the onset of his campaign, that he may be a Nazi sympathizer. Then it was revealed that he admired Adolph Hitler. In a 1975 interview, Arnold Schwarzenegger said “I admired Hitler, for instance, because he came from being a little man with almost no formal education, up to power. I admire him for being such a good public speaker and for what he did with it.”

He is also quoted as saying he longed for an experience, "like Hitler in the Nuremberg stadium. And have all those people scream at you and just being total agreement whatever you say."

Total up his political qualifications. He admits to groping and lying. He is prone to waffle and is unquestionably a megalomaniac. Hey, he might be a shoo-in for the White House! Except for the matter of not being an American born citizen, of course.

But aside from all the noise, the question remains: Why is Arnold Schwarzenegger really running for governor? Sometimes a clearer view of the U. S. can be obtained from the foreign press. Greg Palast, United Kingdom reporter, offers some insight at

Mr. Palast stated: “The wannabe governor has yet to deny that on May 17, 2001, at the Peninsula Hotel in Los Angeles, he had consensual political intercourse with Enron chieftain Kenneth Lay. Also frolicking with Arnold and Ken was convicted stock swindler Mike Milken.”

Mr. Palast based his statements on thirty-four pages of internal Enron memoranda that were faxed to him. He charges that Arnold Schwarzenegger agreed to enter the campaign “to sabotage a Davis-Bustamante plan to make Enron and other power pirates then ravaging California pay back the $9 billion in illicit profits they carried off.”

A private lawsuit was filed last year under California's "Unfair Business Practices Act." This suit was a real threat to Ken Lay and the power lords. The plaintiff is Cruz Bustamante, Lieutenant Governor, and a leading candidate against Schwarzenegger.

The secret meeting was called only one month after the lawsuit was filed. You may have wondered why people from out of state were brought in and paid to collect signatures for the governor recall vote. The recall was no grassroots effort.

Governor Davis demanded that the Federal Energy Regulatory Commission (FERC) order the $9 billion to be refunded. You may have notice that FERC is a little sluggish in taking any action. The head of FERC was proposed by, none other than, Ken Lay. Still, Enron and other energy companies feared the lawsuit.

Mr. Palast wrote “But Bush's boys on the commission have a problem. The evidence against the electricity barons is rock solid: fraudulent reporting of sales transactions, megawatt ‘laundering,’ fake power delivery scheduling and straight out conspiracy (including meetings in hotel rooms).

“So the Bush commissioners cook up a terrific scheme: charge the companies with conspiracy but offer them, behind closed doors, deals in which they have to pay only two cents on each dollar they filched.”

There would be no problems to contend with if the Governor of California just happened to be recalled. But if the governor were replaced by Cruz Bustamante, the energy companies might even be in even worse shape.

If Arnold is Governor, he can bless the sweetheart power companies settlements. This would almost certainly put a damper on the lawsuit by Mr. Bustamante.

Mr. Palast gave Arnold Schwarzenegger’s PR team a chance to respond to the memos, but they chose not to.

The Enron memos were discovered by the Foundation for Taxpayer and Consumer Rights, Los Angeles,

Deregulation Promotes Suffering

Employee Advocate – – October 4, 2003

It is a well established fact of life that those on the lower end of the economic scale always catch the worst end of everything. It cannot be any other way. The people who need a break the most will be passed over in prosperous times. During economic contractions, they always feel the pain first, and for the longest duration.

Those with financial wherewithal are well positioned to exploit prosperous times. These gains insulate them from the harsh times. The people on the other end of the spectrum are sitting ducks for every bad development that comes along. Even if they see the train coming, they do not have the means to get out of the way. And, energy deregulation is a runaway train.

The Associated Press reported that deregulation in Texas not only crushed the people barely getting by, but it offered ways to intensify their punishment. TXU Corp. has been accused of being too eager to disconnect the electrical service for families that get behind in paying their bill.

The Association of Community Organization for Reform Now (ACORN) said that even families with good credit histories had their electricity disconnected for falling slightly behind in paying the bill. Families that were only behind less than $200 had their electricity cut off.

These people were already struggling, or they would have never been behind on their bill. Now they are saddled with hundreds of dollars in fees and extra deposits, on top of what they already owed.

Cledell Kemp, ACORN senior staffer, said “They're doing this because they have the resources to get more deposits and more reconnection fees.”

Some poor families spend half of their income on electricity. By increasing the suffering of the weakest members of society, energy CEO’s are able to add to their millions of dollars in compensation. This money supplements the amounts taken from the employee pension fund and health care benefits. Life is so sweet for the bloated CEO's.

TXU refused to say how many customers it disconnected.

Terry Hadley, PUC spokesman, said “Clearly the disconnections are higher this year.”

There were 727 complaints in only two months.

Texas deregulation laws allowed providers of last resort to charge higher rates to people dropped by utilities. Deregulation has been an endless cycle, impoverishing people already having difficulty paying the higher electricity rates.

Few utilities wanted to be providers of last resort, so the provision was dropped.

Virginians Never Wanted Deregulation

Employee Advocate – - September 27, 2003

Virginia officials have again recommended that parts of the deregulation law be suspended, according to the Roanoke Times. The big savings promised to customers did not materialize to any great degree.

Competitors could not beat the low price of American Electric Power. The people of Virginia never wanted deregulation in the first place. Energy CEO’s wanted deregulation. And, after enough Campaign contributions, politicians began wanting deregulation.

Merchant power companies cannot make huge profits by selling cheap electricity. They can make enormous profits by gouging customers. If a power company is already selling low priced electricity, the merchants leave and look for easier picking.

Of the millions of Virginians that could have selected a new electricity supplier, only one-tenth of one-percent did! Deregulation is the losing dream of greedy energy CEO’s.

A State Corporation Commission (SCC) report found deregulation to be a dud.

The SCC stated “This national result leaves us with substantial doubt as to the ability of retail electric competition to provide, at the present time, lower prices for Virginians.”

Some people thought that deregulation was going to catch on big in Pennsylvania. It never happened. Energy merchants could not beat the price of Duquesne Light Co., Allegheny Power and Penn Power.

Once again, energy merchants have no interest in providing reasonably priced power. They want to play the game of selling megawatts for thousands of dollars. It takes a certain amount of money to produce reliable electricity. If the local regulated companies are doing this, leave them alone!

Another Friday Outrage

New York Times – by Paul Krugman - September 3, 2003

(9/2/03) - When the E.P.A. makes our air dirtier, or the Interior Department opens a wilderness to mining companies, or the Labor Department strips workers of some more rights, the announcement always comes late on Friday — when the news is most likely to be ignored on TV and nearly ignored by major newspapers.

Last Friday the Federal Energy Regulatory Commission, known as FERC, announced settlements with energy companies accused of manipulating markets during the California energy crisis. Why on Friday? Because the settlements were a joke: the companies got away with only token payments. It was yet another demonstration of how electricity deregulation has gone wrong.

Most independent experts now believe that during 2000-2001, price manipulation by energy companies, mainly taking the form of "economic withholding" — keeping capacity offline to drive up prices — added billions of dollars to California's electricity bills. A March FERC report concluded that there had been extensive manipulation of prices in both the natural gas and electricity markets.

Using methods widely accepted among economists, the California Independent System Operator — which operates the power grid — estimated that withholding by electricity companies had cost the state $8.9 billion. This estimate doesn't include the continuing cost of long-term contracts the state signed, at inflated prices, to keep the lights on during the crisis.

Yet the charges energy companies agreed to added up to only a bit more than $1 million. That is, the average Californian was bilked of more than $250, but the state will receive compensation of about 3 cents. Was the fix in? Given the Bush administration's record of catering to energy companies, FERC isn't entitled to any presumption of innocence. Still, the main problem seems to be with the commission's approach: even in the aftermath of large-scale price manipulation, it demands givebacks of excess profits only when it can prove that those profits arose from a specific prohibited action.

This leads to very low settlements, for two reasons. First, while an industrywide pattern is easy to identify, intentional withholding by an individual producer is much harder to prove. Though investigators have found a few smoking guns — control room tapes, e-mail, memos — a power shutdown designed to increase prices is usually indistinguishable from a shutdown for genuine technical reasons.

Second, since withholding drove up prices across the board, each company profited from other companies' price manipulation. So even if FERC forced each company to give back the profits from its own bad behavior, it would leave most of the industry's excess profits untouched.

State officials wanted refunds based on estimates of the overall overcharging that resulted from price manipulation. But my expert contacts tell me that the antiquated language in the Federal Power Act, the basis of FERC's authority, probably doesn't give it the power to enforce such refunds.

On the other hand, FERC clearly does have the power to abrogate long-term contracts signed during the crisis. Indeed, the commission's March report contained a strong hint: "Staff recommends using the analysis in the report to inform ongoing long-term contract proceedings and other complaints that long-term contracts are not J & R [just and reasonable]." But in June, on a 2-to-1 vote (yes, two Republicans against one Democrat), the commission upheld those contracts. So California, the victim of one of the worst abuses of market power since the robber baron era, will get no redress.

So what does this say about electricity deregulation?

There is a theoretical case for a deregulated electricity market. But making such a market work, it's now clear, requires at least three preconditions. First, it requires a robust transmission system, yet the recent blackout made it clear that we have now created a system in which nobody has clear responsibility for the transmission network. Second, it needs a watchdog agency with adequate powers to prevent and punish price manipulation; FERC doesn't have those powers. Third, that watchdog must not be an agent of the very companies it's supposed to be policing. Enough said.

I admire the virtues of free markets as much as anyone. But given what we've seen so far, any state government that lets the federal government prod it into deregulation is just plain crazy.

Duke Dodges 7 More Lawsuits

Employee Advocate – - September 3, 2003

The Associated Press reported that seven energy manipulation lawsuits against Duke Energy, and others, were dismissed.

A spokesperson for California Attorney General Bill Lockyer said “FERC trial staff seems to move aggressively only to the extent of letting companies off the hook.”

Deregulation - Page 5 - 2003