Power Play: The Biggest Game in Town

The little-noted push to deregulate utilities will drive up rates and jeopardize service--not to mention

"All the lobbyists in town are lining up to take a whack at the electricity deregulation bill. It's a piñata filled with billable hours."

--Rep. Ed Markey (D-Mass.)

It's a scandal the size of the savings and loan debacle of the late 1980s, which forced a bailout costing taxpayers $300 billion. We have unfolding before us now one of the most amazing pieces of corporate brigandage in the history of the Republic: the deregulation of the energy industry, notably the utilities that provide electricity to every business and household in the country. There is seldom much public interest in utilities coverage, because middle-class people don't regard utility bills as a big problem in their lives; as it happens, however, deregulation stands to cost the public upwards of $500 billion in the next decade.

For most people, the first intimation of the upheaval came on Super Bowl 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 giant used this most costly of publicity venues to lobby the largest TV audience of the year in favor of federal deregulation of the electric utilities, which Enron ads claim could bring a 50 percent drop in electric bills. These Super Bowl spots were followed by a blitz of full-page ads touting the virtues of Enron in the Los Angeles Times, Washington Post, New York Times, and the Portland Oregonian.

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 most recent one it engulfed--the largest power merger to date--was Portland General Electric, a $3.2 billion deal announced in July 1996.

To get an idea of how easy life is for Enron today, consider what would have happened 25 years ago if such a takeover had been attempted. It was Richard Nixon, after all, who rallied to the cause of energy independence and began funding alternative-energy projects at the same moment he launched American environmentalism on its glory years. The Nixon White House would have deplored this unwelcome integration of separate energy enterprises, and the Democratic Congress would have shouted its agreement, with men like Wright Patman and Jim Abourezk holding savage hearings in which they pilloried Enron executives for their unwholesome eagerness to monopolize the energy industry and hike prices.

But today Enron has its bases nicely covered. There will be 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, and also because Enron has taken the precaution of hiring Robert Crandall, senior fellow at the Brookings Institute, to produce a study promoting the benefits of deregulation of the electric utilities. Crandall dutifully concludes that the past century's efforts to control the big utilities and provide universal service and affordable rates have been destructive. To promote the Enron line, Crandall will teach a seminar on the subject in February at a Baltimore retreat for congressional staffers from the Energy, Environment and Commerce committees.

Enron is not the only big player in the field. The big industrial power consumers--corporations such as Boeing, Raytheon, and Intel--and independent power producers have been pushing for utility deregulation for a decade. The reason is that the price of natural gas has sunk by as much as 75 percent since the mid-1980s due to new sources coming on stream. Also, new combustion-turbine technologies have enabled natural gas to be used in electricity-generating plants, with electric power produced at rates two to three times lower than was possible with old plants fired by coal or nuclear power.

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 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 had to break the utilities' legal 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 choice for the consumer, wherein selecting an electricity provider will be as simple as picking a long-distance carrier. He also promises an era of bargain-basement rates. To lend sinew to such rhetoric, armies of lobbyists have been unleashed on the Hill. Leading the battle for Enron is former Arkansas congressman Ed Bethune (now Newt Gingrich's legal adviser), handsomely backed by the lobbying might of Akin, Gump and Skadden, Arp. Independent power producers have enlisted the services of the lobbying and PR firm Powell and Tate--run by former Carter staffer Jody Powell and Sheila Tate, former press secretary for Nancy Reagan.

Most formidable of all elements in the deregulation coalition is the Electricity Consumer's Resource Council, otherwise known as Elcon. No assemblage of humble citizens this, but a slice of the Fortune 500 in the form of the 30 top corporate energy consumers in the country, including General Motors, Ford, and DuPont. The electric utilities, battling to save their monopoly and protected profits, have assembled their own coalitions, including the brazenly named Alliance for Competitive Electricity and the Edison Electric Institute, which jointly plan to spend more than $5 million in lobbying expenses this year. Their cause is being advanced by former Minnesota Rep. Vin Weber, who has close ties to the Republican leadership of the House, and former Reagan press secretary Michael Deaver at Edelman Public Relations Worldwide.

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 three cents per kilowatt hour, while residential customers and small businesses end up paying eight to nine cents."

There are troubling environmental problems associated with the kind of utility deregulation advocated by the likes of Schaefer and D'Amato. In New England, for example, many environmentalists fear that a deregulated power market will entice big industrial consumers to purchase more power from the high-sulfur coal-powered plants in the Midwest, which the 1990 Clean Air Act exempted from new air pollution standards, thus yielding more urban smog and acid rain.

We now come to the topic 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. Indeed, the electric utilities would like nothing more than to rid themselves of their costly, aging, unsafe nuclear plants. Their dream is to unload the $500 billion in debts on these nuclear plants and other mature facilities onto rate-payers and taxpayers instead of their shareholders.

The utilities insist that if deregulation is to take place and they surrender their monopoly, the albatross of the nukes should be handed amid furtive rites to the taxpayer in a bailout bigger than the S&L scandal. Martha Hewitt at the Center for Energy and the Environment makes the salient point: "Allowing the utilities to recover stranded costs would give the greatest reward to those utilities that made the worst business decisions. What other industry can tap widows and orphans to undo $500 billion in past mistakes?"

But this scenario is exactly what happened in California in the fall of 1996. At the midnight hour on September 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. In addition, the utilities convinced the Legislature to underwrite another $5 billion in subsidies through taxpayer-financed bond issues.

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 ease the way for the bill, which 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."

The California approach has been lauded as a national model by a rather surprising organization: the Natural Resources Defense Council. NRDC's energy guru is Ralph Cavanagh, who recently received an eco-genius award of $250,000 from Teresa Heinz's environmental foundation for his work on utility issues. Since the early 1990s Cavanagh has been working in what he demurely terms a "collaborative process" with utility companies, though he noted accurately enough in an interview with In Context magazine that "the term collaboration still has overtones of Vichy, France." And so it should. Cavanagh has been negotiating with the two major utilities in California, PG&E and Southern California Edison, on what's known as demand-side management, meaning conservation strategies such as better insulation, planting of shade trees, efficient light bulbs and so forth.

No bad thing in and of itself, but as Daniel Berman, co-author of the excellent Who Owns the Sun?, says, "Cavanagh and NRDC refuse to confront the utilities over existing nuclear power plants and lack of investment in renewable energy resources, and they look the other way when the subsidiaries of the large utilities build fossil fuel plants elsewhere in the United States and overseas."

This reference to "overseas" plants is highly pertinent. As Cavanagh palavers amiably with Southern California Edison about storm windows, the company is taking its cut of the $28 billion and investing a portion of it in filthy coal-fired plants in Indonesia, China, and Australia. PG&E, through its subsidiary U.S. Generating Company, has made similar investments in the Far East.

NRDC regularly issues a yearly rating of the "best" utilities in the country, based solely on an analysis of their carbon emissions in the state where they are headquartered. Southern California Edison and PG&E have consistently ranked in NRDC's top five despite their hostility toward renewable, their dependence on nuclear power, and their filthy overseas plants. In a full-page ad taken out in the San Francisco Chronicle by PG&E, Ralph Cavanagh effused: "PG&E programs benefit every sector of the economy. The farmer, the factory owner, or the family of four can save money and improve the environment through PG&E's various energy efficiency efforts."

There are not only ideological but also personal ties involved here. John Bryson, CEO of Southern California Edison, is one of the founders of the Natural Resources Defense Council. NRDC is not the only environmental group with such connections. AES Corporation is one of the nation's largest independent power producers. Its CEO, Roger Sant, serves as the chairman of the board of the World Wildlife Fund, a group that also touts the virtues of deregulation.

This confluence of interests is expressed politically in the Energy Foundation, a group based in San Francisco. The foundation was created in the late 1980s by three of the largest foundations in the country: Rockefeller, MacArthur, and Pew. Its goal is to promote green capitalism on energy issues by doling out $17 million a year to a variety of environmental groups and consumer alliances pushing for low energy costs for poor and moderate-income folk. These alliances are well aware that as deregulation rolls forward there will be no guaranteed service, and no regulatory structure to advocate and protect it.

In the words of Pam Marshall of the EnergyCENTS coalition in Minneapolis, "Industries that provide energy for basic human survival, such as heating and cooling, ought to be overseen by a body whose duty it is to maintain those services for everyone and to ensure against the public harm that energy tragedies can cause." Marshall says that over 100,000 Minnesota households may be at risk of losing their heating if the deregulation forces triumph.

But many groups that might have been expected to make such arguments have fallen strangely silent. The reason seems simple: They have been blessed with dispensations from the Energy Foundation. According to Eugene Coyle, who once worked for a Bay Area group called TURN (Toward Utility Rate Normalization), "The Energy Foundation has threatened to strip funding from groups that have opposed its deal-making with the utilities."

Indeed, Daniel Berman brusquely terms the Energy Foundation "a money-laundering operation," a charge that seems well-deserved. Rockefeller and Pew--both with endowments deriving from oil--fund another foundation that duly remits large sums to groups such as Cavanagh's NRDC, which then advocates exactly the policies desired by the big energy companies. Since 1990, NRDC has received more than $2 million from the Energy Foundation, and has been able to direct the flow of millions more to groups that will parrot the NRDC energy line.

In the final episode of our story, the trail now heads back to Enron. Back in July, Enron announced its planned takeover of Portland General Electric, as part of its plan to bolster its holdings in preparation for federal deregulation of the electric utilities. Rather than challenging the takeover with the Federal Trade Commission on anti-trust grounds, a coalition of "public interest" groups came out in favor of the merger, citing Enron's sensitivity toward environmental and rate-payer issues. This came as something of a shock to many environmentalists in the Northwest, who note that Enron has lavishly funded attacks on the Endangered Species Act and that its CEO, Kenneth Lay, served as chair of the abortive Phil Gramm presidential campaign.

We have a copy of the Memorandum of Understanding signed by Enron and 13 conservation and community organizations, headlined by the NRDC. It was proudly faxed to us by Enron. In exchange for testifying before the Public Utility Commission and the Federal Energy Regulatory Commission in favor of the merger (their travel expenses generously picked up by Enron), the groups will receive a variety of pecuniary rewards. For example, the Northwest Environmental Advocates will receive $30,000 from Enron for its Riverwatch program. The Native Fish Society will receive $20,000 for its hatchery-reform campaign. Oregon Trout's Salmon Watch program will rake in $15,000. The 13 groups as a whole receive $75,000 to hire someone to testify at the Public Utility Commission hearings on the economics of the merger. Larger slices of the pie are going to big enviro-corporate players such as the Nature Conservancy. Ralph Cavanagh showed up at the press conference announcing the deal, and exulted that the Enron merger with Portland General Electric "is a national model for the industry."

A $500 billion bailout and an alliance stretching from Enron in Houston to NRDC in New York City to the Energy Foundation in San Francisco: It's one of the biggest stories of the 1990s, but those Super Bowl commercials are about the most you'll ever hear about it.

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