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Enron Mail |
---------------------- Forwarded by Richard Shapiro/NA/Enron on 01/03/2001=
=20 03:38 PM --------------------------- =20 =09 =09 =09From: Ann M Schmidt 01/03/2001 03:31 PM =09 To: Karen Denne/Corp/Enron@ENRON, Vance Meyer/NA/Enron@ENRON, Meredith=20 Philipp/Corp/Enron@ENRON, Steven J Kean/NA/Enron@Enron, Eric=20 Thode/Corp/Enron@ENRON, James D Steffes/NA/Enron@Enron, Richard=20 Shapiro/NA/Enron@Enron, Damon Harvey/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, G= ia=20 Maisashvili/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, John=20 Neslage/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: =20 Subject: USA Today Opinion - Electricity Prices http://www.usatoday.com/news/comment/debate.htm =09=09 =09=09 =0901/03/01- Updated 02:37 AM ET=09 =09=09 =09=09 =09=09 =09=09 =09=09 =09=09 =09=09? =09=09Prices spike as Calif. bungles deregulation=20 =09=09When Californians bought into the idea of deregulated electricity in = 1996,=20 they did so on the promise they'd get reliable power at cheap prices.=20 Instead, they're facing power shortages and whopping bills. =09=09The state's public utilities commission is scheduled to decide Thursd= ay=20 whether to let two big utilities raise rates by up to 30%, ending a price= =20 freeze that was supposed to last until 2002. Financially strapped utilities= ,=20 meanwhile, are threatening blackouts.=20 =09=09With electricity deregulation underway in 23 other states, households= =20 nationwide should be wondering whether they'll be next to face=20 California-style chaos. It is a red flag that electricity deregulation, whi= ch=20 continues to hold promise for lower rates, must be approached cautiously an= d=20 gradually. =09=09California made a series of remarkably large blunders, many encourage= d by=20 utilities, that set the state on a dangerous path to deregulation without t= he=20 competition needed to hold down prices. Unless the state corrects those=20 errors, matters will get worse when full deregulation comes in two years.= =20 Much of the state could be served by power monopolies free to hike prices.= =20 =09=09The good news is that other deregulating states have planned better, = though=20 the process in those states is less advanced than in California. =09=09Among California's failings:=20 =09=09Utilities were barred from raising rates to consumers but had to cope= with=20 market prices from power plants. When deregulation began, the utilities=20 heartily backed the arrangement, because the frozen prices were far higher= =20 than the market prices they paid. Now, with a national energy shortage=20 pushing prices higher, they're worried about bankruptcy, threatening=20 blackouts and pleading for relief. Some seek re-regulation to protect=20 themselves from their own ineptitude. =09=09The state failed to bring enough new supply online before deregulatin= g. No=20 major plants were built in the previous decade, contributing to a supply=20 crunch in a state where electricity demand has been growing 4%-6% per year.= =20 By contrast, Texas, which is rolling out its deregulation more slowly, has= =20 since 1996 built 23 new plants that have added 15% more power-generation. =09=09California tried to manipulate prices and blew it. The state required= =20 utilities to buy all of their power from a "power exchange" in short-term= =20 blocks. This prevented utilities from entering long-term contracts or=20 adopting hedging strategies that could keep prices stable. After prices=20 spiked, the government worsened the situation by trying to cap prices=20 utilities could pay for power. Not surprisingly, power suppliers then sold= =20 their electricity to other states without price caps, where they could get = a=20 better return. Result: power shortages rectified only by an emergency feder= al=20 order that some out-of-state plants in the West sell California electricity= .=20 Price controls were lifted.=20 =09=09Other states have avoided this problem. New York, for instance, encou= raged=20 its utilities to enter into "transition contracts" under which plants have = an=20 obligation to sell them power. Similarly, Texas has long-term contracts,=20 under which the utilities buy power for long periods at set prices, allowin= g=20 them to hedge against short-term changes in price. =09=09The price of all this bungling will be huge for Californians, but hou= seholds=20 outside California may pay as well. The Western plants that the federal=20 government has forced to supply California's thirst could in time have=20 difficulty supplying their traditional customers, driving up their prices. = In=20 the extreme, the financial instability of California utilities Pacific Gas= =20 and Electric and Southern California Edison could roil markets and add to= =20 recession pressures. =09=09At a minimum, most Californians will soon face significant financial = pain =01*=20 unwarranted on their part =01* to pay for the botched deregulation either= =20 through taxes or higher rates. If this bailout isn't accompanied by new=20 rules, the 2002 ending of price caps may bring the worst of all worlds:=20 monopoly markets without price controls. =09=09Long term, the best hope for controlling prices is competition, but= =20 California has yet to come up with a convincing plan to make sure that=20 exists. In fact, in the San Diego area, where controls were briefly lifted= =20 without significant new competition, prices more than doubled.=20 =09=09Some advocacy groups and politicians are calling for more radical sol= utions,=20 such as a state buyout of the utilities or simple refusal to pay the=20 utilities on the grounds they must be hiding money somewhere. The utilities= ,=20 having tasted their own medicine, now say they'd support re-regulation. =09=09But none of these fixes would save California's consumers from the di= m-bulb=20 management that has put the state at risk of power outages and financial=20 catastrophe. =09=09California Gov. Gray Davis' said recently that "if deregulation fails= in=20 California, it is dead in America." To the contrary, as California does its= =20 repair work, the rest of the county will be taking notes on how not to=20 deregulate as carelessly as California did. =09=09 =09=09=09 =09=09=09 =09=09=09? =09=09=09 =09=09=09? =09=09=09? =09=09=09? =09=09=09? =09=09 =09=09 =0901/03/01- Updated 02:38 AM ET=09 =09=09 =09=09 =09=09 =09=09 =09=09 =09=09 =09=09? =09=09Learn from California mistake=20 =09=09By Harvey Rosenfield and Douglas Heller=20 =09=09The myth of electricity deregulation has met reality in California, a= nd the=20 result is a $40 billion debacle. =09=09Awash in energy-industry campaign contributions, California lawmakers= freed=20 the state's utility companies of price controls in 1996. Consumers were=20 ordered to pay off the utilities' debts, after which competition was suppos= ed=20 to kick in, guaranteeing a 20% rate cut by 2002.=20 =09=09Deregulation proved a bonanza for the utilities. They sold some of th= eir=20 power plants and collected $19 billion in ratepayer subsidies. They used th= e=20 money to purchase plants in other countries, reward their executives with= =20 huge pay raises, buy back stock and increase dividends. Profits reached=20 record levels this year. =09=09Envious, the handful of unregulated companies that control nearly hal= f of the=20 state's electricity generation decided to cash in, too. This cartel began t= o=20 withhold power, causing shortages that boosted the wholesale price of=20 electricity that utility companies must buy by 3,900%. But, ironically,=20 because of the way they wrote the deregulation law, the utilities are=20 forbidden to pass the higher costs on to most consumers until 2002.=20 =09=09Now the companies want to rewrite the law. When public officials resi= sted the=20 utilities' demands for immediate rate hikes, the utilities threatened=20 blackouts and bankruptcy. When that economic extortion failed, Wall Street= =20 issued an ultimatum: Order a 20% rate hike within 48 hours, as a first=20 installment of an $11 billion ratepayer bailout, or Wall Street would itsel= f=20 force the utilities into bankruptcy.=20 =09=09California has learned the hard way that electricity is too vital to = be left=20 in the hands of unregulated corporations whose sole interest is maximizing= =20 profits. Facing a ratepayer revolt, state officials have re-imposed=20 regulation. To make electricity reliable and affordable once more, they are= =20 considering establishing a non-profit, publicly owned power system for the= =20 state. But, in the meantime, the deregulation disaster could end up costing= =20 each Californian $12,500. =09=09Meanwhile, elsewhere in the nation, corporate-funded ideologues and a= cademics=20 continue to promote electricity deregulation, much as they promoted looseni= ng=20 controls on savings and loans in the 1980s.=20 =09=09Whenever you hear the word "deregulation," hold onto your wallets: So= me=20 industry is about to pick your pocket. =09=09Harvey Rosenfield and Douglas Heller are consumer advocates with the= =20 Foundation for Taxpayer and Consumer Rights. Its Web site:=20 www.consumerwatchdog.org.
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