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March 2001
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Beast of the Month - March 2001
Kenneth Lay, Enron Corporation Chairman
"I yam an anti-Christ..."
John Lydon (aka Johnny Rotten) of The Sex Pistols, "Anarchy in the UK"
Not since the Savings & Loan scandal under Reagan-Bush has such a huge financial scandal hit the United States. Just as the S&L crisis was caused by a government policy that seemed to beg thievery, so has the California electricity swindle, both of which were sold to the public as "deregulation". And just as the senior Bush's fingerprints were everywhere surrounding the S&L looting, cronies of "president" Shrub are the main culprits behind the latest fiasco. The crisis is no minor thing: though it is currently merely a state-wide problem (albeit the largest state, one that controls a sixth of the US economy), it will either turn into an early warning for other states not to follow or a shape of things to come. Roughly half the United States has deregulated their electricity market, or is in the process of doing so. So far it has nearly bankrupt the state's three largest utility companies (Southern California-Edison, Pacific Gas & Electric and San Diego Gas and Electric) and led to widespread blackouts - something normally associated with a Third World Nation, not a leading edge economy.
How did this all happen? News reports often try to chalk it up to a variety of reasons, but it really is due to only one: state deregulation of the electricity market. The proof is in the differences in the state between the deregulated areas and the control sample. For example, the city of Los Angeles is hardly known for being stern power conservationist, and yet residents are unaffected by the scandal. The reason: Los Angeles has a municipal-owned utility system, and thus was not part of the scheme. The L.A. utility has even profited off the mess itself, by selling surplus electricity to the rest of the state at a profit (though at a merciful lower price than other energy producers have gouged.) If that isn't enough evidence of a scandal, a study by Public Citizen concluded that peak power demand has been lower in four of the last six months, which proves the claim by power producers that increased consumer demand is the culprit to be bogus.
California Assembly Bill 1890 was presented to the public as a remarkable restructuring of the electricity market for their benefit. It changed the electricity marketplace radically: it split the electricity business into one group of companies to generate power, and another to buy and deliver it. Utility companies were to sell off their power plants, a move they lobbied for since the high costs of building and maintaining unprofitable plants - most notably inefficient nuclear power plants, which didn't lived up to the promises of their proponents - had eaten away profits. Price caps on electricity providers (a turn-of-the-century Progressive era reform to prevent market manipulations and gouging) were eliminated, with caps on utility bills to follow when companies recouped expenses from failed plants. The theory behind the deregulation plan was that with multiple sellers and distributors of electricity, a competitive marketplace would develop. It hasn't quite turned out that way: the large capital required to enter the electricity market leads to an oligopoly. If oligopolies secretly (and illegally) agree to limit supply of an inelastic good such as electricity, they can reap windfall profits when prices remain unrestricted. That is precisely what has happened. While utilities were paying $35 per megawatt hour last year for electricity, the price recently has reached up to $1,400.
A.B. 1890 was passed in both houses of the state legislature by a unanimous vote. This was despite protests from consumer groups, who objected to the subsidy of failed power plants and warned of the potential fiasco that has since erupted. The objections were ignored by both sides of the aisle in a rush to serve the interests of big business. The main proponent of the measure was Republican Governor Pete Wilson: now, with Democrat Gray Davis in the governor's seat, the rush continues. After he promised no blackouts, public bailouts, or rate increases, he has since predictably caved in and all three are ready to follow. He now appears to be on his way to signing up long-term contracts with electricity providers at rates nearly double previous years to stop even more rampant theft. While his actions are praised by mainstream media as supposed "crisis management", more cynical observers note that he could've used the state of emergency and seized electricity plants in California: even with ample compensation of plant owners for this maneuver, it would be cheaper than the strategy Davis has used instead. This would still be a benevolent strategy: considering secret agreements to fix prices are against the law (the legal definition, incidentally, of a conspiracy), prosecution of corporate criminals and the confiscation of their plants would be a modest proposal. Instead of doing this, Governor Davis has decided to negotiate with an industry which, coincidentally, has given his campaign $239,000 over the last three years.
Meanwhile, George W., the self-proclaimed healer, has dismissed the crisis - in a state he soundly lost during the 2000 campaign and likely will lose again in four years - as a state problem, not a federal one. Though a reinstitution of an electricity rates cap could end the crisis in a second, he has refused to do so. (For the record, Slick Willie refused to take this step as well.) Nevertheless, he has offered to charitably ease air pollution regulations on the state's power plants. Other right-wing business interests are using the power threat to push for easing up on zero-emission car requirements and nuclear power plants. As Arnold would put it, "Heal on this."
The Bush connection to the fiasco runs even deeper. The biggest beneficiaries of the California energy mess come from the Lone Star state. Seven energy companies listed in a lawsuit over the scandal have Houston headquarters. Most notable is the Enron Corporation, which has been a major backer of Dubya. Enron has given $820,000 in soft money to the GOP and recently "donated" $100,000 toward the Bush inaugural. Its two top executives, Chairman Kenneth Lay (The Konformist Beast of the Month) and Jeffrey Skilling, apiece also gave another $100,000. Lay himself has donated more than $350,000 directly to Bush campaigns since 1997, and was one of several Bush 'pioneers' who helped raise more than a $100,000 dollars for his 2000 campaign. The contributions appear to have paid off already: fourth-quarter revenues for Enron have risen 271% from a year earlier to $40.8 billion, and earnings from wholesale energy business nearly tripled to $777 million as well.
Not that the state's private utilities, the supposed "victims" of market thievery, aren't a beneficiary from the mess themselves. While Pacific Gas and Electricity is billions in debt, it's parent company, PG&E Corp., is raking in dough, as it owns 30 power plants in 10 states. All told, PG&E Corp. (the villains in Erin Brockovich) has revenues of at least $21 billion and total assets of nearly $34 billion. California-Edison is a similar shell corporation for Edison International. Therefore, much of the immense "losses" these two companies face go directly to themselves in another pocket.
Still, the real villain here (besides the sinister swindler-in-thief posing as president) is Enron, the top sugar daddy for Shrub and his frightening political career. While GOP hacks feign outrage at Bill Klinton's sleazy pardon of financier Marc Rich, their silence over the slimy trail of dollars from Lay and Enron to Bush speaks volumes. The activities of Enron and its executives in this fiasco appear to be criminal, but what are the odds that Bush or supposed good Christian John Ashcroft will investigate? As thanks for all his campaign dollars, Kenneth Lay was reputed to be on Bush's short list for energy secretary, which would've been a curious conflict of interest had it moved forward. As it turns, such a move would've been a step down for Lay. Right now, he seems to be personally running energy policy quite fine.
In any case, we salute Kenneth Lay as Beast of the Month. Congratulations, and keep up the great work, Ken!!!
Much of this article was adapted from:
The California Electricity Swindle
Robert Sterling (robalini@aol.com)
Disinformation ( http://www.disinfo.com )
February 01, 2001
Post Office Box 24825
Los Angeles, California 90024-0825
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