Posted on 07/19/2005 10:09:01 AM PDT by WayneLusvardi
"Exponential Enrons (not) ahead" - PUHCA ("Pooka") Hobgoblin Exorcised
According to Irish folklore a "pooka" is a mischievous spirit, or hobgoblin, which takes the form of an animal. The irrational fear of a new hobgoblin of sorts has recently arisen with resistance against reform of the law enacted in 1935 with the acronym PUHCA for Public Utility Holding Company Act (pronounced "pooka").
Syndicated columnist Molly Ivins, Ralph Nader, and a number of so-called consumer advocacy organizations have all come out against the recent Congressional reform of PUHCA (http://www.pasadenastarnews.com/Stories/0,1413,206~11851~2969511,00.html#). One website, Truthout.org, warns that there will be "exponential Enrons ahead." Truthout.org claims that for 50-years we have had reliable, cheap electric power that has allowed strong economic growth, and no PUHCA-regulated energy holding company has ever gone broke" (http://www.truthout.org/docs_2005/062305A.shtml).
Hmmm..I guess Truthout.org missed the entire California energy crisis of 2001 where all the state's regulated utilities incurred huge losses or went "BK" (bankrupt). It was a private corporation, Reliant Energy, which, without media fanfare, rescued the state from an even worse meltdown of the energy system (see "The Unsung Heroes of the California Energy Crisis" http://www.chronwatch.com/content/contentDisplay.asp?aid=12705&catcode=33). The gullible mainstream media fell for the government's scapegoating of Enron as the chief culprit behind the California electricity crisis, which was actually almost entirely caused and worsened by government (see "California's ?Bogus' Energy Crisis in Retrospect," http://www.chronwatch.com/content/contentDisplay.asp?aid=12139&catcode=33).
PUHCA was originally passed during the Great Depression in response to investor losses resulting from failure of a number of utility holding companies. The way utility holding companies were structured in the 1930's undeniably disguised the unscrupulous bilking of subsidiary companies through service contracts, dubious depreciation techniques, and inflated property values resulting in the eventual collapse of the holding companies. PUHCA apparently was also meant to prevent Union Oil, Standard Oil, Huntington and other oil companies from getting into the energy business, which would have worked against consumer interests.
But what PUHCA also did was prohibit utilities from diversifying across regions as well as across industries. What has resulted over time is that regulated utilities, such as PG&E and Edison, municipal utilities, and other quasi-public distributed generation and co-generation companies have become de facto monopolies without much in the way of outside competition in California. The result has been about 30% higher electricity prices in California than other states in the Western region of the U.S. Deregulation in California in 2001 was supposed to remedy this, but was hijacked by the same interests that were benefiting from the old system (e.g., regulated utilities, unions, municipal utilities, state energy agencies, legislators needing union votes, etc.).
It is undeniable that Enron committed securities and accounting fraud, but it did not principally cause the California energy crisis. Enron pulled off a few minor but highly profiled energy trades to get around the weird restriction against trading electricity across regional boundaries. These energy trades were an apparent attempt to escape the state-mandated surtax, called a "competitive transition charge," to pay off unpaid debts on old polluting power plants, environmental litigation costs on nuclear power plants, and subsidies for over-priced solar, wind, and geothermal power plants.
As Jose Gomez Ibanez points out in his book "Regulationg Infrastructure: Monopoly, Contracts, and Discretion" (2003), after the energy crisis of 2001 California shifted from a regulated-public utility model to a system of public-private long-term contracts for energy at above-market prices to pay off all the unpaid debts which had accrued on old and uncompetitive energy facilities. If the old regulated utility companies, such as PG&E, are eventually going to be able to lower electricity prices for consumers under this new "regulation-by-contract" system, they must be able to enter into contracts for cheaper out-of-state power which would be shipped into California through new transmission lines. The major impediment to this new "contractual" system is the outdated provisions of PUHCA.
And if private investment capital is going to be attracted to build these new transmission lines, the old restraints of PUHCA are also going to have to be relaxed or repealed.
Contrary to the alarmist rhetoric of those like the highly politicized journalist Molly Ivins who only want to keep you misinformed, we aren't likely to be paying our electricity bill to Exxon Mobil, Halliburton or other "evil" Republican companies which she detests. What we are hopefully going to see is competitively priced wholesale power being shipped into California and re-sold at retail prices by the long-standing regulated utilities, such as PG&E. The price of this out-of-state energy will have to compete with new merchant energy plants powered by liquid natural gas (LNG) terminals to be erected several miles off the coastline. As Steven Malanga points out in his new book The New New Left (2005), the antidote to over-priced public services is a free market; or shall we say a "freer" and more open market.
PUHCA is no longer in the public interest; that is unless you define the public interest as the overpriced electricity charged by union-run regulated utilities, municipal utilities, state power agencies, and others quasi-public entities. The provisions of PUHCA continue to protect us against hobgoblins that have ceased to exist. Consumer advocates that throw out the name "Enron" are like spiritualists who have apparitions of demonic ghosts from the past and then want to charge you $100 to vanquish them. But this is a tactic with more of a political agenda than it is advocacy for electricity consumers. True consumer advocates need to remain vigilant about the workings of the new "contractual" system of energy regulation. But PUHCA is a costly hobgoblin that needs to be overpowered and exorcised. -- The Pasadena Pundit
Pooka bump! (Harvey, are you there?)
Not this kid. I would rather see a distributed architecture of small power producers relying upon biomass and miniature nuclear. The system would be much more rugged, line losses lower, distribution virtually already exists, and its dispersed nature reduces its target value and the impact of interruption. Individual risks are lower and the need for massive capital is reduced, particularly for long, high powered transmission lines.
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