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Profile: Power Play, Who's to Blame for the Energy Crisis?; Lowell Bergman,= "Frontline" correspondent, Laura Holson and Joseph Kahn, The New York Time= s, discuss the energy crisis 06/04/2001 ABC News: Nightline © Copyright 2001, American Broadcasting Companies, Inc. All Rights Reserv= ed. Announcer: June 4th, 2001. CHRIS BURY host:=20 Rolling power blackouts, bankrupt utilities, skyrocketing electricity price= s. Unidentified Man #1: It is the most volatile commodity in the world.=20 BURY: Are power generators gouging consumers?=20 Unidentified Woman #1: I think it's pretty appalling that the folks who sel= l us power can charge whatever they want.=20 Mr. KENNETH L. LAY (Chairman, Enron): And every time there's a shortage or = a little bit of a price spike, it is always collusion or conspiracy or some= thing. I mean, it always makes people feel better that way.=20 BURY: And right in the middle, a federal agency you've probably never heard= of.=20 Mr. CURTIS HEBERT (Chairman, Federal Energy Regulatory Commission): They di= dn't build this monopolistic system overnight, and we won't change it overn= ight either.=20 BURY: Tonight, Power Play, Who's to Blame for the Energy Crisis?=20 Announcer: From ABC News, this is NIGHTLINE. Substituting for Ted Koppel an= d reporting from Washington, Chris Bury.=20 BURY: California is known as the great American incubator. From hem lines t= o Hula-Hoops, the Golden State gives birth to trends that often spread east= . That is why so many states are paying close attention to California's tro= ubled attempt at deregulating electricity. Last week, California Governor G= ray Davis asked President Bush for help in the form of a price cap on power= companies. The president said no. Now Governor Davis is threatening to sue= the federal agency that regulates electricity prices. More on that later.= =20 But first, the results of a new ABC News/Washington Post poll. It suggests = that President Bush is developing an energy problem. When asked what they t= hink of the president's performance on energy, a clear majority, 58 percent= , say they disapprove. That's up 15 percent since Mr. Bush released his ene= rgy plan. When asked if they think the United States is heading into an ene= rgy crisis, six in 10 Americans answer yes.=20 TEXT:=20 ABC News POLL The Washington Post=20 Margin of Error +-3.0%=20 How do you rate the president's performance on energy?=20 June 3 May 13=20 Disapprove 58% 43%=20 Do you think the US is heading into an energy crisis?=20 Yes 61% No 36%=20 BURY: California is already there. For months now, The New York Times and t= he public broadcasting program "Frontline" have teamed up to investigate. T= heir collaboration, "Blackout," airs tomorrow night on many PBS stations. I= t documents a colossal mismatch in the brand new game of buying and selling= power on the open market. It's like the New York Yankees against the Toled= o Mud Hens.=20 Unidentified Woman #2: We didn't use his five because their minimum was, yo= u know, higher than what we were willing to pay.=20 Unidentified Man #2: I'll sell you 108 now.=20 BURY: (VO) On one side, companies such as Enron, the Texas energy broker, t= rade electricity like any other commodity. A sophisticated trading operatio= n buys and sells billions of dollars worth of energy every day. It's the la= rgest company of its kind in the world.=20 Unidentified Man #3: See what I'm saying?=20 KELLY: CRS. This is Kelly.=20 BURY: (VO) On the other side, in this converted department store in Sacrame= nto, is California's trading team.=20 Unidentified Man #4: This is the operations center. This is the--this is th= e location where we make energy purchases and fill the state of California = energy requirements.=20 BURY: (VO) Here, employees drafted from the state's water department go hea= d-to-head with the pros from Enron and other companies. Since 1999, the cos= t to California has skyrocketed from $7 billion to an estimated $60 billion= this year, an increase of 750 percent. And the demand for electricity, up = less than 5 percent.=20 (OC) In their documentary, reporters for The New York Times and "Frontline"= address a fundamental question, who's to blame? Narrating this segment is = "Frontline" correspondent Lowell Bergman.=20 Unidentified Man #5: Our forecast reserves look like they'd be pretty thin = over the peak as well.=20 Unidentified Man #6: How much is...=20 LOWELL BERGMAN reporting:=20 (VO) The power industry blames the high prices on shortages brought on by C= alifornia's failure to build any major power plants over the last decade, d= espite a booming economy.=20 Mr. LAY: I mean, we have a supply/demand imbalance. Too much demand, too li= ttle supply in California.=20 BERGMAN: (VO) Not everyone agrees. Consumer advocates in California accuse = the generators of actually withholding supply.=20 Ms. NETTIE HOGE (Executive Director, TURN): The idea that all of a sudden w= e had a supply crunch is preposterous. What happened is, all of a sudden, t= he new plant owners and the traders, like Mr. Lay's organization, looked at= the data and figured out how to manipulate the market. As soon as that hap= pened, the prices never went down again. If it was totally a supply problem= , why would we have excess prices at 5:00 in the morning on Christmas Day w= hen nobody but Santa is working?=20 BERGMAN: (VO) The generators, in turn, say they shut down plants for routin= e winter maintenance.=20 Mr. LAY: Every time there's a shortage or a little bit of a price spike, it= 's always collusion or conspiracy or something. I mean, it always makes peo= ple feel better that way.=20 BERGMAN: But you know as well as I do that the price--it's nice for a busin= ess.=20 Mr. LAY: Yeah.=20 BERGMAN: You're in the business of--of making money for your shareholders.= =20 Mr. LAY: Mm-hmm.=20 BERGMAN: Right, as a company?=20 Mr. LAY: Yeah.=20 BERGMAN: So you would be foolish, as you said, to turn down the kind of mon= ey you could make this past winter in California. Is--isn't there a...=20 Mr. LAY: I--I--I think you put words in my mouth out there.=20 BERGMAN: OK.=20 Mr. LAY: I said we--we made some money in California. We made some money ac= ross the country and around the world. I mean, and as I tell my friends in = California, Enron was doing quite well before California imploded.=20 Unidentified Man #7: So you can't blame the Enrons. I mean, they're the guy= s--that's--that's what they do. They try to make as much money from the mon= ey that they get invested. You blame the regulators.=20 BERGMAN: (VO) Across the country, tucked in an out of the way building behi= nd Union Station in Washington, DC, sits the Federal Energy Regulatory Comm= ission or FERC. FERC's commissioners are appointed by the president and con= trol a $250 billion energy sector critical to America's economy. With the c= oming of deregulation, state control over wholesale electricity rates passe= d to the federal government, making FERC the final arbiter of just and reas= onable rates. It's a power FERC has been reluctant to use.=20 Curt Hebert is a protege of Senator Trent Lott, who convinced President Cli= nton to appoint Hebert to the FERC in 1997. In January, President Bush made= him the FERC chairman, and Hebert has made no bones about where he stands = on free markets.=20 Mr. HEBERT: The rules of competition govern that economies work, that choic= e works. It's why we're American. We inherently like choice. It's why we le= ft the mother country. We didn't like the rules they were setting. We wante= d to make our own rules. We want our own choices and we believe that works.= =20 BERGMAN: OK, but is electricity different?=20 Mr. HEBERT: It's a transition . It takes some time. Look, they didn't build= this monopolistic system overnight, and we won't change it overnight eithe= r.=20 Mr. WILLIAM MASSEY (FERC Commissioner): Without some effective price contro= l this summer, I fear for the worst.=20 BERGMAN: (VO) William Massey is a FERC commissioner, a Democrat, who has fo= und himself in opposition to his chairman.=20 Unidentified Man #8: Mr. Massey, what is the nub of the disagreement that y= ou have with Mr. Hebert?=20 Mr. MASSEY: I think what it boils down to is a philosophical disagreement a= bout the role of my agency in ensuring just and reasonable prices.=20 I think it's long past time for this agency to step in and--and impose a te= mporary time out on the markets.=20 Mr. HEBERT: Well, that is the problem because these people are saying tempo= rary, but they don't mean temporary. It's kind of like the temporary rent c= ontrol you have in New York. It's not temporary at all. Matter of fact, you= know, in Washington, DC, we don't do temporary very well, and that's a pro= blem.=20 BERGMAN: (VO) In fact, late last year, after six months of unrelenting high= prices in California, the FERC finally did declare California's rates unju= st and unreasonable, but took no action.=20 Governor GRAY DAVIS (Governor, California): So they found these people guil= ty a year ago. They just haven't agreed on the sentence.=20 BERGMAN: Well, we talked with Curt Hebert. And we got...=20 Gov. DAVIS: Well that's, you know.=20 BERGMAN: That's what?=20 Gov. DAVIS: Lots of luck.=20 BERGMAN: What do you mean, "Lot's of luck"?=20 Gov. DAVIS: Because...=20 BERGMAN: He's the federal--he's the guy you are turning to to give you the = money.=20 Gov. DAVIS: He is the chairman of the commission. But he has not been overl= y sympathetic to California. He's more of an ideologue than a problem solve= r.=20 BERGMAN: Well, he's saying you just want him to give you short-term relief,= price caps, which won't solve the problem.=20 Gov. DAVIS: Problems meaning fattening the balance sheet of already enormou= sly wealthy energy companies.=20 BURY: How much blame do the energy companies really deserve?=20 BERGMAN: Watch your--your heating bills, your natural gas bills, which are,= to a certain extent, reflected in your electricity bill. And don't think t= hat this couldn't happen where you are.=20 BURY: And how much of this energy crisis did California bring upon itself? = Those questions when we come back.=20 Announcer: This is ABC News: NIGHTLINE, brought to you by...=20 (Commercial break)=20 BURY: Joining us from Boston, Lowell Bergman, the correspondent for tomorro= w's "Frontline" broadcast. From our Los Angeles bureau, Laura Holson, a bus= iness correspondent for The New York Times, who's been covering the Califor= nia energy crisis. And here in Washington, Joe Kahn, who reports on energy = and economics for The New York Times.=20 Laura, just before the break, we heard California Governor Davis blaming th= e energy companies and the federal regulators. How much of his argument is = sinking in. In other words, whom do Californians blame for this?=20 Ms. LAURA HOLSON (The New York Times): The interesting thing is Californian= s blame everybody for this ap--for what has happened with the energy crisis= . They blame the governor for not responding quickly enough to a crisis tha= t started, you know, a year ago, if you really, you know, look at when pric= es starting going up. They are angry at their utilities who they feel have = failed them. They have often had very close kind of paternal relationships = with their utilities and they feel that they've been cheated. And they are = very angry with the power generators, in particular, who they feel are char= ging them just exorbitant amounts for energy.=20 In particular, there was a company last week, a power generator that said i= t charged consumers, rather the utilities, 4,000, nearly $4,000 per megawat= t hour, which is enough to light a thousand homes for one hour. And when th= ey heard this, they were outraged. They just thought, you know, `How can th= is be? How can we get,' in their terms, kind of ripped off by power generat= ors who are using them to make, you know, a lot of money.=20 BURY: Joe Kahn we heard those poll numbers from this survey out tonight sug= gesting that President Bush has a bit of a public relations problem on ener= gy. How is that going to affect the politics here in Washington?=20 Mr. JOSEPH KAHN (The New York Times): Well, clearly the--President Bush and= the White House are calculating that by the time people have to go to the = polls to select a new president, a slew of new power plants will be online = in California. Electricity prices, presumably, will come down quite a bit a= nd their free market stance on this will not ultimately cost him at the pol= ls. It's not as clear that Republicans in the Congress have the same commit= ment. This has already been a very turbulent time in Washington with the De= mocrats now in control of the Senate. I think you can expect to see a legis= lative initiative by the Democrats to introduce some kind of price caps in = California. Some Republicans may sign on to that. Some have already indicat= ed that they will. It's going to be a real knockdown political flight--figh= t in Washington over what the strategy ought to be.=20 BURY: Lowell Bergman, talk a little bit about that free market activity tha= t Joe just mentioned. We saw the clip from your documentary with the--the t= raders from Enron pitted against the--the buyers from California. And I mus= t say, it really did look like a mismatch.=20 BERGMAN: Well, in fact, some of the people at Enron told us that they welco= me the day when PG&E and Southern California Edison, the regular utilities = get back in the marketplace because they do feel like they've got them, if = you will, outgunned. And--but I should point out to the audience, that when= Laura was talking about this $3800 a megawatt hour, which was Duke Energy = Company, the normal price, if you will, the standard price for a megawatt h= our was around 40 or less. So the level of profit that we're talking about = is what people are upset about. And the problem here is--is primarily that = in a free market and the way that the marketplace in California is set up i= n particular, there's no limit to what could be--could be charged when you = get close to that area of scarcity with electricity. Electricity truly is d= ifferent and as Jeff Skillings says in our documentary, he's the CEO of Enr= on, it is the most volatile commodity in the world.=20 BURY: Yet, at the same time, Joe, we are seeing electricity traded as if it= were oil or soybeans or steel. I mean, how is electricity different?=20 Mr. KAHN: Well, for economic reasons, it's different in a--in a couple of k= ey respects. For one thing, it's an absolutely vital commodity. People aren= 't prepared to do without it. Moreover, electricity powers every other part= of the economy. So, it's one of these sort of fundamental rights that we h= ave. In fact, as far back as the New Deal, Franklin Roosevelt made clear th= at electricity was so important that it would be subject to federal legisla= tion guaranteeing everybody in this country just and reasonable electricity= prices.=20 BURY: But just and reasonable electricity prices, Laura, do you want to pic= k up the question of well, who determines what's just and reasonable here?= =20 Ms. HOLSON: Well, it's very clear that President Bush believes that the mar= ket, you know, sets what's just and reasonable. And, you know, that has not= been what Governor Davis has said at all. He believes that because this is= a commodity that people, you know, believe is guaranteed that there should= be some price cap on it. It's an interesting, if you will, situation when = business and politics kind of intersect. Governor Davis said very early on = that he did not want two things to happen in California. One is that the ut= ilities would go bankrupt and the second was that rates would be raised for= consumers. And he's in a very tight spot right now because those two thing= s that he did not want to happen indeed have happened. And it only looks li= ke it will get worse this summer when experts have said Californians can ex= pect another 260 hours of blackouts.=20 BURY: Laura, we have to take a break. But when we come back, we want to add= ress the question of whether power companies are doing what just comes natu= rally to them. Back with our guests in a moment.=20 (Commercial break)=20 BURY: We're back with "Frontline"'s Lowell Bergman and Laura Holson and Joe= Kahn of The New York Times.=20 Joe, aren't these power companies doing exactly what they are supposed to b= e doing, which is maxi--maximizing profits and to get the biggest return fo= r their shareholders?=20 Mr. KAHN: Sure. That's their responsibility. They--they have no excuse for = arbitrarily lowering the price that they could charge for electricity if th= e market will bear a higher price.=20 BURY: Lowell Bergman, in your documentary, do you find any evidence that th= e power companies are--are gouging consumers or doing anything illegal?=20 BERGMAN: Well, illegality, no one really has any serious evidence, although= there have been lots of allegations and there's been lots of speculation a= bout it. But we should also point out in the documentary and in The Times t= hat some of the companies are starting to realize, it seems, that even thou= gh they are owed hundreds of millions, in some cases $500 million or more s= till by these bankrupt utilities, they're going to have to take a hair cut = as Governor Davis describes it. They're going to have to make some bargain.= And I think we may...=20 BURY: Let me jump in there. What do you mean they're going to have to get a= hair cut?=20 BERGMAN: Well, apparently, that's Governor Davis's way of telling them that= they're going to have to take less to a--less than a full dollar payment f= or what they are owed, and that there has to be some kind of settlement her= e of between the various parties, other we're not--otherwise we won't see a= ny progress.=20 BURY: Lowell, one of the old cliches in investigative reporting is follow t= he money. And much has been made of this argument that the Bush administrat= ion, accusations have been made, that the Bush administration is too cozy w= ith the power companies and the power company regulators. What did you find= in your reporting?=20 BERGMAN: Well, we found that Vice President Cheney was very up front about = it, I mean, about his relationship with Ken Lay, the head of Enron, the fac= t that he built a stadium for Enron when he was head of Halliburton. You kn= ow, the vice president is the first CEO of a Fortune 500 company to hold pr= esidential office in the history of the United States. So--but they are ver= y open and up front and balance this relationship with their friends and wi= th the people who they feel comfortable with.=20 BURY: Laura Holson, this idea that so many Texas companies are profiting fr= om California's misery, as it were, I suppose Californians find that partic= ularly infuriating.=20 Ms. HOLSON: It's funny, in the San Francisco Bay area when I was growing up= near there, there was this great rivalry between the San Francisco 49ers, = which is, as we all know, a football team and the Dallas Cowboys. And that = seems to be replaced, if you will, with consumers in California who look at= Texas gen--at, you know, a lot of the power generators, which are based in= Texas, and who they feel now are just, you know, making a lot of money off= them. It's--there's always been a rivalry between those two states. And no= w I think it's deeply personal because it's hitting consumers, or as they b= elieve it, it's hitting them in their pocket books.=20 BURY: Joe Kahn, how long before these new power plants are going to be comi= ng on line? And before they do, or in the time before they do, what--what i= s it that the federal government can do to help California out?=20 Mr. KAHN: Well, it--it will probably be about 18 months before sufficient n= ew power comes online in California to start substantially changing the sup= ply and demand equation there. And that's a very speedy pace. That's with a= very expedited permit process for new plants. The governor in California h= as put a lot of effort into building new plats--plants quickly.=20 BURY: So what happens between now and then?=20 Mr. KAHN: Well, that's the question. That's the debate. The Federal Energy = Regulatory Commission has the power under the Federal Power Act, in fact so= me people argue it has the obligation under the Federal Power Act to ensure= that just and reasonable electricity rates prevail in California at all ti= mes. It can't just selectively choose the times. And it has already found a= t the end of last year that rates in California are unjust and unreasonable= .=20 BURY: So what's it doing about that?=20 Mr. KAHN: Well, it's--it's tried a variety of compromise measures so far, v= ery limited price controls on certain kinds of electricity sales during eme= rgency hours. So far that appears to be an insignificant contribution to re= ducing the overall electricity bill in California.=20 BURY: Laura, Governor Davis is demanding wholesale price controls. Presiden= t Bush has made it pretty clear that he's not going to lean that way. What = options does Governor Davis have?=20 Ms. HOLSON: You know, it's--again he's stuck in this place where it--it doe= sn't look like he's got any kind of real out. I mean, he can try to demand.= He can demand as much as he wants from the power generators, but if the fe= deral government doesn't step in, he really can't do anything. The interest= ing thing, at least I see kind of going forward, is how Californians have r= eally adapted to a really, you know, awful situation. There's a law that's = being proposed right now in California in which businesses will know months= in advance whether their neighborhood is going to be impacted by a blackou= t so they can plan. I mean, we've almost turned into--if anybody remembers = traveling through Italy during their college days, you always kind of knew = when the airlines or the trains were going to go on strike because they tol= d you a day ahead of time. And that's very much what's happening in Califor= nia where they're warning people, you know, two days, an hour, you know, on= e day ahead of time so that they can prepare.=20 BURY: That's a pretty dark scenario. Lowell, we just have a few seconds lef= t, what lessons should the rest of the country take from California's crisi= s?=20 BERGMAN: Well, watch your--your heating bills, your natural gas bills, whic= h are to a certain extent reflected in your electricity bills. And don't th= ink that this couldn't happen where you are. And I think that the industry = itself is beginning to understand that the crisis in California may, in fac= t, impact on the future of deregulation nationally.=20 BURY: Lowell Bergman, Laura Holson, Joe Kahn, thank you so much for joining= us tonight.=20 BERGMAN: Thank you.=20 Mr. KAHN: Thank you.=20 Ms. HOLSON: Thank you.=20 BURY: When we come back, an update on a NIGHTLINE broadcast from just over = a month ago.=20 Announcer: To receive a daily e-mail about each evening's NIGHTLINE and a p= review of special broadcasts, logon to the NIGHTLINE page at abcNEWS.com.= =20 (Commercial break)=20 BURY: In May, we profiled the case of death row inmate Johnny Paul Penry, c= onvicted of murdering the sister of a former pro football player. Today, th= e Supreme Court overturned Penry's death sentence. It ruled, six to three, = that the jury did not have clear instructions on how to weigh his mental re= tardation when it sentenced him. The court will take up the broader issue, = whether executing the mentally retarded is cruel and unusual punishment, in= its next term.=20 That's our report for tonight. I'm Chris Bury in Washington. For all of us = here at ABC News, good night. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =20
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