A Bigger Scam Than the S&L Bailout

For most people, the first intimation of the upheaval came on Superbowl Sunday, Jan. 26. In the numerous intermissions in Fox's five-hour coverage, Whoopi Goldberg, Liz Taylor and Sylvester Stallone look-alikes sang the praises of the largest natural gas company in the world: Enron. The Houston-based company used this most costly of publicity venues to lobby in favor of federal deregulation of the electric utilities.

And why is Enron, a natural gas company, devoting millions to the topic of electricity deregulation? Because Enron is in the process of buying up electrical utilities across the country.

The big utilities such as Southern California Edison and New York's Con Ed are stuck with these old plants. They were thus in a poor position when their major industrial users came to them demanding lower rates reflective of the cheaper new natural gas technology. Having sunk billions into the big nuclear power plants, these utilities couldn't shift over nor could they afford to give the big industrial consumers basement rates. So the industrial users threatened to take their business to independent power producers such as Enron or simply to build their own low-cost generating plants. But in order for this to happen, both the industrial users and the independent power producers have to break the utilities' monopoly over the production, transmission and sale of electricity.

Their hopes are now vested in deregulation bills promoted by Rep. Daniel Schaefer of Colorado and that friend of the rich and powerful, Sen. Al D'Amato of New York. Schaefer paints a glowing vista of virtually unlimited flexibility of choice for the consumer.

At this point, the reader's sympathies may be drifting toward Enron and the independent power producers that at least offer lower rates. And if the reader happens to be a major stockholder in large industrial organizations, he or she will be right. Eugene Coyle, an economist who studies the utility industry, puts it this way: "What we are looking at is the shift from a situation where there are more than a thousand utilities nationwide over which rate payers have some control to a future where there will be perhaps 10 big power companies operating free of regulation and acting like the oil cartels of old. The benefits of deregulation will go to the big industrial buyers who will sign 10-year contracts with companies like Enron and pay perhaps 3 cents per kilowatt hour, while residential customers and small businesses end up paying 8 to 9 cents."

We now come to the matter of "stranded costs," described by John Bryson, CEO of Southern California Edison, as the "make or break issue." The word "stranded" here is used in the sense of "beached," as in a beached or stranded whale -- the whale in this case being nuclear power plants. Utility men usually call them "stranded assets," a decorous way of invoking a mountain of debt and potential liability with a half-life of several million years. The electrical utilities' dream is to unload the $500 billion in debts on these nuclear plants and other mature facilities onto rate payers and taxpayers, instead of on their shareholders.

But this scenario is exactly what happened in California in the fall of 1996. At the midnight hour, on Sept. 15, the state assembly unanimously passed a bill deregulating the state's utilities and soaking the rate payers for $28 billion. The money covered the utilities' disastrous investments in the Diablo Canyon and San Onofre nuclear plants. The cost will be paid by a hidden tax on the utility bills of unsuspecting residential rate payers.

Southern California Edison and Pacific Gas and Electric, the state's two largest utilities, doled out more than $3 million in 1996 alone in political contributions and lobbying expenses to slide the bill through. The bill was drafted by a Southern California Edison lobbyist, who temporarily joined the staff of the state senator leading the deregulation effort. Wendy Wendlandt of Californians Against Political Corruption calls it "one of the greatest consumer robberies in California history."

There is no uproar in Congress from liberal Democrats because there is no longer an appetite -- or even the necessary knowledge -- among congressional staffers to organize vigorous hearings. Thus a scandal bigger than the $300 billion savings and loan bailout unfolds with barely a public squeak.