Democracy And Regulation
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Jerrold Oppenheim
Theo MacGregor

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By Greg Palast

Who's to blame for blackout? Dim bulbs in D.C.
Boston Globe
August 23, 2003
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GREG PALAST Who's to blame for blackout? Dim bulbs in D.C. By Greg Palast, Boston Globe 8/23/2003

TOO MUCH NEWS ink has been spent already on trying to guess which of the Three Stooges of the power industry -- First Energy (in Ohio), First Energy (in Pennsylvania), or the Niagara-Mohawk Power Corp. -- started the most recent blackout. Ultimately, the cause of this blackout can be traced to the dim bulbs in the White House. When the lights went out, Spencer Abraham, the secretary of energy, issued a statement that, "We need to [give] the Federal Energy Regulatory Commission the authority to impose mandatory reliability standards." This can't be the same guy who, as a senator from Michigan, supported elimination of the department and boosted "deregulation" of the electricity system. In the '80s, I investigated the Blackout Three utilities for state regulators on charges ranging from incompetence to racketeering. But they need not fear that now because the laws have been changed. Deregulation, signed into law in 1992 by George Bush the First, means that what was once against the rules or even criminal statutes is now OK. What exactly does "deregulation" mean for the power plants? Let's break it down into four parts: Decriminalizing payments to politicians: Twenty years ago, a unit of Southern Company was convicted of making illegal campaign contributions in Florida. Under the Public Utility Holding Company Act of 1933, our legacy from Franklin Roosevelt, no big power combine could give a dime to a politician -- no "hard" money, no "soft" money, no money period. Today, the same payoffs would earn these folks a ticket to a barbeque at President's Bush's ranch. FDR's law has been shot full of loopholes. Enron, formed in 1985, led the rush into this new free market. The Houston operator became the No. 1 contributor to George W. Bush's campaigns, followed by Exxon and Southern. Decriminalizing price gouging: In the days before deregulation, government dictated the price of electricity. It was a simple formula. The companies got back their costs and a set profit. If they tried to charge more, they went to prison. But the California Legislature, well lubricated with campaign contributions, pulled the lid off prices and covered it with a lie. The lie was written into the law's preamble -- that a free market in electricity would cut home power bills by 20 percent. In 1999, electricity surcharges jumped 327 percent in a single year in California. The free market in electricity was -- and is -- a fixed casino. Power tricksters use such game-tilting techniques as "false scheduling" and "megawatt laundering," which, in 2000, cost California consumers $6.2 billion. That calculation comes from Dr. Anjali Sheffrin of the California engineering group assigned to keep the lights on. She documents how three companies locked up the market with false power bids every day for the last three months of the year. But under our new regime, Abraham's power commission has informed California that the public won't get back one dime. Decriminalizing service cuts. In 1989, I joined a government and consumer racketeering investigation of power companies that had falsely charged about $61 million for spare parts they did not use. Before the rules were swept away, government would hold private utilities to detailed budgets: how much to spend and how to spend it. The lights stayed on. No more. Under deregulation, Niagara-Mohawk Power cut its workforce by 800 over the past two years and its new British owners pocketed nearly $90 million. Decriminalizing Accounting Flim-Flams. In that 1989 investigation, we threw the "Uniform System of Accounts," a thick set of rules that tracked the nuts and bolts, at the utility companies. A grand jury was about to indict the companies but, under the rules of our federal racketeering laws, Bush Sr.'s Justice Department stepped in and quashed the prosecution. The company had kept two sets of account books, but only one was shown to the IRS and power regulators. While the grand jury thought this suspect, the Bush administration found the procedure acceptable as it had been approved by the auditors at Arthur Andersen and Co. Letting the bad guys off the hook in 1989 was the signal that Harry Potter bookkeeping was fine with them. Now the administration has prescribed a cure for the ills caused by deregulation: more deregulation. Don't look to the guys who took us back to the Dark Ages for answers; ask the ones who kept the lights on. Greenport and Rockville Center in New York just flickered and kept the juice flowing. Both are publicly owned power systems. While the Niagara-Mohawk lines went dead, the neighboring public system, NYPA, never blinked. The first big operator back up was Long Island Power Authority, the publicly owned system that replaced the Long Island Lighting Company. LILCO lost its franchise when voters had enough of its profit-driven incompetence. Deregulation and decriminalization have put out our lights. It's time for some law and order.

Greg Palast is author of "The Best Democracy Money Can Buy" and, with Theo MacGregor and Jerrold Oppenheim, "Democracy and Regulation."