Utilities’ $500-Billion Power Play

We have unfolding one of the most amazing pieces of corporate brigandage--upward of $500 billion over the next decade--in the history of the republic: the deregulation of the energy industry, notably the utilities that provide electricity to every business and household.

For most people, the first intimation of the upheaval came during the Superbowl game. In commercials, 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 for 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.

Enron is not the only big player in the field. The big industrial power consumers, such as Boeing, Raytheon and Intel, and independent power producers have been pushing for deregulation for more than a decade. The reason is that the price of natural gas has sunk by as much as 75% since the mid-1980s because of new sources. New combustion-turbine technologies have also 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 California’s 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 demanded lower rates reflective of the cheaper technology. Having sunk billions into big nuclear power plants, these utilities could neither shift over nor offer basement rates. So the industrial users threatened to take their business to independent producers like Enron or to build their own plants. But for this to happen, the industrial users and the independent 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 two Republicans, Rep. Daniel Schaefer of Colorado and that friend of the rich and powerful, Sen. Al D’Amato of New York.

You may find appeal in Enron and power producers that offer lower rates, especially if you have stock in large industrial organizations. Eugene Coyle, an economist who studies utilities, puts it this way: “What we are looking at is the shift from a situation where there are more than 1,000 utilities nationwide over which ratepayers 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 . . . pay perhaps three cents per kilowatt hour, while residential customers and small businesses end up paying eight to nine cents.”

We now come to the matter of “stranded costs,” described by John Bryson, CEO of Edison, as the “make or break issue.” The word “stranded” is used in the sense of “beached,” as in a beached 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 utilities’ dream is to unload the $500 billion in debts on these plants and other mature facilities onto ratepayers and taxpayers instead of onto their shareholders.

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 last year, when the Legislature unanimously passed a bill deregulating the state’s utilities and soaking ratepayers for $29 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.

Edison and Pacific Gas and Electric, the state’s two largest utilities, doled out more than $3 million in 1996 in political contributions and lobbying to slide the bill through.

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