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August 8, 2005

Ken Lay and Dick Cheney Won

-- by Gary Boatwright

The energy bill contained a repeal of the Public Utility Holding Act. The prices you pay for energy is now controlled by Enron wannabees and there is nothing you can do about it. From the L.A. Times, Repeal of Utility Law Opens Door for Mergers: Supporters expect more money to flood the industry. Critics fear regulatory uncertainty.

When Enron Corp. was collapsing in 2001, it sucked in every dollar it could find from its subsidiaries to fend off its creditors. One of its pipeline companies borrowed $1 billion, using its pipes as collateral.

But one subsidiary escaped: Portland General Electric, Oregon's biggest public utility, which Enron had bought in 1997.

State regulators insisted that the utility's revenue remain in Oregon. In U.S. Bankruptcy Court, they made sure that creditors did not lay claim to the company and sell it. Earlier this year, they repelled an attempt by Texas buyout specialists to purchase the utility with borrowed money, saying the sale could cause rate increases.

What enabled the regulators to shield Portland General Electric from the Enron debacle was the Public Utility Holding Company Act, a New Deal-era federal law requiring companies that owned electric utilities either to incorporate in the state where they sell power or to accept tight regulation by the federal Securities and Exchange Commission. The law also forced almost every company that owned an electric utility to sell off its unrelated subsidiaries — keeping oil companies, for example, out of the utility business.

But after more than 20 years of agitation from industry financiers and free-market advocates, the 1935 law will be repealed when President Bush signs the energy bill, which he is expected to do Monday at a ceremony in Albuquerque.

State regulators will soon be at the mercy of corporate robber barrons. They will be manipulating the energy market and ripping off the citizens of every state for billions of dollars. Enron and the California energy crisis was just a dry run. The final obstacle has been removed.

Wall Street is running rampant. Of course they claim that corporate consolidation of the energy market is good for the consumer:

Wall Street analysts and energy industry observers expect the repeal to accelerate the industry's consolidation, with more utilities being bought by national — and even foreign — electricity companies and by oil, construction and service companies.

Indeed, three industry deals that are already underway, involving the exchange of more than $30 billion in cash and stock, were triggered by the anticipated elimination of the holding company act, according to stock analysts.

Duke Energy Corp. is buying Cinergy Corp. and Exelon Corp. is acquiring Public Service Enterprise Group Inc., in both cases creating power companies that serve customers far from the corporate headquarters.

In addition, Warren E. Buffett's MidAmerican Energy Holdings Co. has offered $5.1 billion in cash for PacifiCorp, an Oregon company that provides electricity to the very northern reaches of California along with parts of five other Western states. Jonathan Weisgall, vice president of legislative and regulatory affairs at MidAmerican, said the change would allow his company to bring billions of dollars of investment capital to PacifiCorp.

Deals like these, and the possibility of many more, are one reason that utility company stocks have rocketed this year, adding to their sharp gains in 2003 and 2004.

The Dow Jones utility stock index, which tracks 15 major issues, is up 18.2% year to date, and last week hit its highest level since 2000.

The State PUCs and FERC will be just as outgunned and outmanned as they were during the California energy crisis:

The full value of utilities now available to be bought and sold is estimated at about $1 trillion — and as takeovers and mergers create larger companies, the change in the law will diminish federal oversight. The SEC will no longer regulate utilities, and its most powerful rules will be lifted.

It's for our own good, don't you know:

Supporters of repeal say the change will bring new money into the industry, enabling it to build cleaner generating plants and additional power lines to stabilize the power grid.

Not everybody is convinced:

Bob Finkelstein, executive director of the Utility Reform Project, a San Francisco advocacy group, is unimpressed by such claims.

"The promises of life being better under the new regime are exactly the promises we got under deregulation" of California's energy industry, Finkelstein said.

He and other consumer advocates warn that the end of the holding company act could turn utilities into speculative investments, as they were before 1935. They fear that an oil company or a manufacturer of nuclear turbines, for example, that buys a utility would have an incentive to sell its type of energy to captive consumers, regardless of cost.

Sue Kelly, chief counsel for the American Public Power Assn., a trade association for more than 2,000 community-owned nonprofit electric utilities, has another worry.

"I am concerned about a Carl Icahn-type person coming in and stripping a company and flipping it," Kelly said, referring to the corporate raider who came to prominence in the 1980s.

"The potential is there for all types of financial transactions, if not shenanigans, that we have not seen for 70 years," she said.

We are so screwed:

Under the utility company act, the SEC had broad powers over publicly traded utilities and could turn down mergers. Under the new law, several different entities — state public utilities commissions, the Federal Energy Regulatory Commission and, for utilities that own nuclear generators, the Nuclear Regulatory Commission — will take over regulatory duties, and they will have much less authority than the SEC.

Consumer advocates say state regulators in particular aren't necessarily prepared for the legal changes ahead. For the first time, state public utilities commissions will have to regulate utility mergers and track internal cash flows in what promise to be interstate corporations.

Bend over and grab your ankles. There's not a damn thing anyone can do about it anymore.

Posted by Gary Boatwright at August 8, 2005 6:17 AM

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Comments

Wow, what happy news! Good old Consolidated Edison, Manhattan's electric co., does so little about upkeep of its infrastructure that it has actually electrocuted a woman who slipped and fell on a highly charged grate. NYC's poor dogs who step on anything metal while being walked in snowy weather are likely to literally get shocked out of their doggy minds. It's the East Village, which is where the poor woman was killed, that screams loudest about this, but the problem is all over Manhattan and it's gone on for years. Do other utility companies feel it's OK to kill their customers yet?

Posted by: MJ [TypeKey Profile Page] at August 8, 2005 11:13 AM

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