Energy deregulation will not deliver the promised land of CHEAP

By Lee Russ

Sunday, October 15, 2006 at 02:54 PM

You know, today's NY Times has a piece by DAVID CAY JOHNSTON titled "Competitive Era Fails to Shrink Electric Bills."  Shocking, isn't it, especially since the fraud behind the privatization of public utilities has been articulated several times by several people.

The Times piece makes no mention of these past articulations of privatization fraud in the utilities industry, of course.  it does say:

In Baltimore, an expected 72 percent rate increase in electricity prices has aroused so much protest that the state legislature met in special session, where it arranged to phase in the higher costs over several years. In Illinois, rates are about to rise as much as 55 percent.

The three New York area states opened their electricity markets to competition, with different results.

In Connecticut, residential electric rates rose up to 27 percent last year to an average of $128 a month, and are expected to go up as much as 50 percent more in January.

In New Jersey, rates rose up to 13 percent this year, and are poised to go much higher.

New York residential customers, by contrast, paid an inflation-adjusted average of 16 percent less in 2004 than in 1996, a state report said. It is not known how much of that is attributable to government-ordered rate cuts, but the state benefited from huge increases in power generated by its nuclear plants and by buying power from New England plants that, starting next year, may have less electricity to sell to New York.

And it superficially addresses why deregulation might not have produced the savings that its proponents always claimed:

The disappointing results stem in good part from the fact that a genuinely competitive market for electricity production has not developed.

Concerned about rising prices, California and five other states have suspended or delayed transition to the competitive system.

And voters around two California cities, Sacramento and Davis, will decide next month whether to replace investor-owned utilities with municipal power in hopes of lowering rates. Drives are under way to expand public power in Massachusetts. In Portland, Ore., the city council tried and failed to buy the local utility company.
...
The Federal Energy Regulatory Commission and five other agencies, in the draft of the report to Congress, are unable to specify any overall savings. "It has been difficult," the report states, "to determine whether retail prices" in the states that opened to competition "are higher or lower than they otherwise would have been" under the old system.

Joseph T. Kelliher, the commission chairman, said Friday that eventually "market discipline will deliver the best prices" and noted that every administration and Congress since 1978 had pushed the industry toward competition. He added that the commission recognized a need for "constant reform of the rules."

Am I losing it, or does that sound like the author's saying there hasn't been enough deregulation/privatization?  Or enough time operating under deregulation/privatization?

Fortunately, buried way, way down in the story we get this:

A truly competitive market has never developed, and, in most areas, the number of power producers is small. In New Jersey, for example, only six companies produce power, and not all of them sell to every utility.

Some utilities have decided to buy electricity not from the cheapest supplier but from one owned by a sister to the utility company, even if that electricity is more expensive. That has been the case in Ohio.

And if electricity is needed from more than one producer, utilities pay each one the highest price accepted in the bidding, not the lowest. This one-price system, adopted by the industry and approved by the federal government, is intended to encourage investment in new power plants, which are costlier than older ones.

But critics say that, as in California five years ago in a scandal that enveloped Enron, the auction system can be manipulated to drive up prices, with the increases passed on to customers. What is more, companies that produce electricity can withhold it or limit production even when demand is at its highest, lifting prices. This happened in California, and the federal commission has found that it occurred in a few more instances since then. Critics say that more subtle techniques to reduce the supply of power are common and that the commission shows little interest in investigating.

Bryan Lee, a FERC spokesman, said complaints of manipulation are investigated, but only last year did Congress give the commission the legal tools to punish manipulators.

Under the new system there have been some big winners -- including Goldman Sachs and the Carlyle Group, the private equity firm -- that figured out that there were huge profits to be made in one area of the new system.

Such investors have in some cases resold power plants they just bought, making a large profit. In other cases, investors have bought power plants from the utilities at what proved to be bargain prices, then sold the electricity back at much higher prices than it would have cost the utility to generate the electricity.

Richard Blumenthal, the Connecticut attorney general, said the supposedly competitive market has been "a complete failure and colossal waste of time and money."

He asked the federal commission to revoke competitive pricing in his state, but the commission dismissed the complaint last Wednesday, saying the state had not proved its case.

Well, David Palast, in his excellent book The Best Democracy Money Can Buy: The Truth About Corporate Cons, Globalization and High-Finance Fraudsters, details the corporate and market shenanigans that mostly American power companies have perpetrated on the planet.  And I don't mean just Enron, though that disaster of a con was certainly part of it.  Palast notes that the power deregulation con hit Europe before it hit America, causing astounding rises in price, very similar to the California nightmare produced by Enron and its friends. And he details the political corruption that ended with these same American corporation in charge of a crap-load of power supply companies in South America.

No mention of that in the NY Times.  No mention of it hardly anywhere else, either.

Nor is Palast alone in his view.  For example, check out this summary of an analysis of "electricity deregulation failure," by Ferdinand E. Banks:

The purpose of this paper is to clarify some of the confusion that still exists around the rather sensitive subject of deregulation. The simple truth is that -- in one sense or another -- electricity deregulation has failed everywhere, and its failure is fully in line with mainstream economic theory. There are some activities in which deregulation makes a great deal of economic sense, and this should be immediately clear to observers who are familiar with the electricity deregulation 'meltdowns' in California, Alberta (Canada) and Brazil.

It's a con folks.  Always was a con, still is a con, and it will again be a con when we next hear the cries from corporate frauds of "free us from the regulatory shackles and we shall deliver thee unto the promised land of CHEAP."

The only cheap things you'll ever see from deregulating industries like power are the absurd explanation of why it produced higher prices.