Energy Execs, The New Robber Barons

by Molly Ivins

The last time we had unregulated electricity markets in the United States was in the 1880s, and energy writer Harvey Wasserman describes it as "an unmitigated disaster: a short-term free-for-all followed by an avalanche of corporate consolidation."

George Westinghouse and J.P. Morgan (General Electric) were the largest among the few remaining behemoths. Morgan wanted to "avoid the inconveniences of competition, which he considered barbaric, an unconscionable waste of resources." They monopolized urban lighting, power and trolley companies by the simple expedient of buying entire state legislatures, not to mention one of the most corrupt Congresses in our history -- the one that inspired Mark Twin's famous observation on our only native criminal class.

In 1893, the country was hit by a terrible depression and part of the populist response was to form "munis" -- municipally owned utilities. In Detroit, the price of running a streetlamp fell from $132 in 1894 under private control to $63 a year in 1902 under municipal control. War raged between the munis and the private utilities. "Munis everywhere offered cheaper rates and a political freedom unknown where private barons owned both the utility and the government."

I bring up this history because Ken Lay of Enron Corp., the country's largest electricity trader, appears to have been studying J.P. Morgan. The New York Times reported last week Lay had called the chairman of the Federal Energy Regulatory Commission (FERC) and told him he would support his continuing as chairman if he changed his stance on energy deregulation to coincide with Enron. Lay denies there was a quid pro quo and says the decision about the chairman will be made by the White House. However, there is considerable evidence that Lay and the White House are as one.

Enron and its executives gave $2.4 million to federal candidates in the last election, 72 percent of it to Republicans. Lay personally is one of Bush's major, major donors. That's a lot of "access."

Lay is a busy fellow. In addition to helping Dick Cheney with the White House energy plan, he was in California last week visiting Arnold Schwarzenegger and Richard Riordan, both potential candidates for governor against Davis. Michael Milken and other luminaries also attended.

According to the San Francisco Chronicle, Lay wants more rate increases, an end to state and federal investigations of price manipulation, and less regulation. He also wants more federal control over the power grid and believes state power authorities should be scrapped.

Let's see now. If you were running for governor of California, would you run on a plan devised by the company that is making staggering profits (a 281 percent increase in revenues in the first quarter) out of your state's misery?

Davis, meanwhile, is preparing to sue FERC for not putting a cap on energy prices after the commission's finding last year that the California market is dysfunctional and the rates are "unjust and unreasonable." Bush went to California and, as the Los Angeles Times put it, "wagged his finger and lectured Californians that the energy issue needs action ... not political excuses and blame-laying. But he brought little action with him and once again stiffed the state."

The last president who capped energy prices was that mastermind Richard Nixon. What Davis wants FERC to do is considerably different. He is willing to guarantee power companies profits of 30 percent to 40 percent, which all would have to agree is rather on the generous side.

California's power problem is short term: The state is building new plants at an amazing rate (four this year, four next). But in the meantime, Californians have watched prices go from $30 a megawatt in 1999 to $1,900 this spring. That's ridiculous.

Bush worries that a cap will "spread the shortage," but as others have pointed out, it is more likely to increase short-term supplies and save California utility companies. The state can then build its way of the supply problem -- which is actually a transmission problem.

According to Davis, Bush agreed with him that it makes no sense that the price of natural gas going from Texas to California is $14 per BTU, while the price going from Texas to New York is $5. He agreed to see if something could be done about it.

True, California's plan is stupid in that consumers have no incentive to turn off their air conditioners, but letting the utility companies charge the ratepayers (as happened in San Diego) willy-nilly would be even stupider. The distribution system for electricity is still a "natural monopoly." You can't give monopolies free rein because, as has been proved time and again, there is no limit to greed. Those old populists knew what they were talking about.