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Ken Lay
Chairman of Enron Corporation
We use competitive markets to arrange for delivery of our food supply. We use
competitive markets to arrange for delivery of our shelter, our housing. We
rely on competitive markets to arrange delivery of our clothing, and of course,
the gasoline we put in our cars so we can get to work in the morning; the
heating oil that we buy in the Northeast and elsewhere to heat our homes when
it's 30 degrees below zero. ... If the rules are right--and they were not right
in California--but if the rules are right, electricity, like any other
commodity, can be arranged for, can be priced more efficiently by competitive
market forces than it can be by regulators and monopolists.
Nettie Hoge
Executive director of The Utility Reform Network (TURN)
Electricity is not Q-tips and bubble gum. It's an essential commodity that
everyone needs. It's absolutely essential that it be available in a
predictable manner to keep the economy going, and that it be available for
everybody on a non-discriminatory basis to have justice and equity. And it's
really hard to get it started, because there's huge investment in large power
plants.
... I believe that essential commodities with high capital entry cost and
inelastic demand make a really good argument for rational oversight and
regulation--in order to assure stability--and centralized planning, which would
mean resource allocation, and fairness to the regular old ratepayer who needs
this to live. ...
I think the problem is essentially that we've taken electricity ... and we've given it over to market mechanisms, and the market is
ruthless. So we're seeing the exercise of market power and the
profligate greed of people who have us in a bind. We gave over regulation of
the generation assets--the plants that make electricity--to multinational
corporations who have absolutely no concern for how much we pay, or what pain
it puts the California economy in. ...
Curt Hebert
Chairman of the Federal Energy Regulatory Commission (FERC)
Rules of competition govern that economies work, that choice works. It's why
we're American. We inherently like choice. It's why we left the mother
country. We didn't like the rules they were setting. We want to make our own
rules. We want our own choices, and we believe that works. But when you set up
artificial markets, it doesn't work. ... We've got to get market certainty.
We've got to give some insulation to the American public. And that's what
we're doing. ...
Loretta Lynch
President of the California Public Utilities Commission (CPUC)
You and I have to buy electricity every day, and we can't store it. ...
Electricity must be used when it's made. ... So the people who make electricity
know that you and I can't just decide not to buy it today if the price goes up
too high, and they know we don't have a substitute for it. You can't just light
candles to make your computers run. So they know they have a fundamental
economic necessity that people will buy at any price, and so they charge any
price they want.
That's rational economic behavior on the part of the person who has the golden
goose, right? But it's not good corporate behavior, and it's not behavior
that's good for our economy; which is why virtually every industrialized nation
in the world regulates the prices that somebody can charge for electricity.
Pat Wood
FERC Commissioner
I think those of us who are strong advocates for the free market recognize that
"free" is a relative word. "Freer than what it used to be." ...
So you're not a supporter of a totally free unregulated marketplace, sort of
Adam Smith with the invisible hand coming in?
No. I think that that ignores the basic realities of this industry. There is
a lot that we can do less of on the government side. There are three areas of
the electric industry: there's power generation; there's power delivery, which
are the poles and wires; there's power sales. Only the middle of those is a
natural monopoly. ... So that's where competition works its magic, on that 75
percent of my bill that is power generation and power sales.
Markets can deliver that just and reasonable outcome more effectively than
regulators can. And I happen to be in agreement that that is the truth,
because I am a regulator, and I can tell the dirty truth: We don't do a good
job. It's like regulating the flow of Niagara Falls with a bucket. We think
we're doing good because we walk out of it wet, but you look in the bucket and
you've got half a cubic foot of water, and 50 million times that amount has
gone over. So markets tend to be better.
But where markets don't work--that's what regulators are there for. The just
and reasonable rate is the goal here. As we move from a system that works on a
mediocre level--regulation--we need to make very sure that the system we're
moving to is at least an improvement on that. So the market system ought to be
better than regulation, and if it's not, then we need to rethink it. ...
Severin Borenstein
Director of the University of California Energy Institute and a professor of
business at the Haas School of Business at California-Berkeley
If we got rid of all regulation, the next few years would be such a massive
transfer of wealth from consumers to companies like those owned by [Enron
Chairman] Ken Lay that the voters would never stand for it. ...
Dick Cheney
Vice president of the U.S., Cheney is chairman of President George W. Bush's
task force on energy policy
Generally the view has been in recent years--and I think it's a correct
one--that having a market approach will attract the investment that's needed in
order to produce enough; the law of supply and demand takes over, and that's
how you get reasonable prices. The price has shot up in California, for
example, because there has been no significant increase in supply in California
for about 10 years, although there's been a 24 percent increase in the demand
for electricity. So the key to reasonable prices, long term, is supply. ...
David Freeman
Energy advisor to California Governor Gray Davis
The economists, they have an interesting word; it's a Freudian slip. They call
it "externalities." ... That's their word for saying that the impact on the
consumer, you just have to live with it. After all, it's kind of like
deregulating the police department and saying, "Well, we have a shortage of
police, a few people get murdered, it doesn't matter. Then we'll hire more
police and it'll all work out." They are without any human feeling as to the
impact on the consumer, or, actually, the impact on small, independent
producers when the price gets too low. This volatility, what we're learning,
is no good. ...
The truth of the matter is that the price of electricity for public power is
lower. Just look at California. Where are the lights on and not blinking? In
Los Angeles, where we have public power, and in Sacramento, and in Anaheim, and
in Glendale and all these public power cities. They can huff and they can puff
and they can say what they want to, ideologically. The plain truth of the
matter is California is a vivid demonstration that public power serves the
people, and private power has been an abysmal failure as far as the consumer is
concerned. ...
What's happened to the price of natural gas under deregulation? You ask the
consumers of natural gas in California or anywhere else in the country, where
half the homes are heated with natural gas, how they feel about that product's
price today. The price has gone up 50 percent to 60 percent. Consumers are
angry about the fact that a free market turns out to be very expensive. Now the freedom is for the producer to pick our pockets, literally. I'm not saying
that they're doing anything illegally. But the very fact that they are free to
charge what the market will bear is turning out to be very expensive for the
consumer. ...
Robert Glynn
Chairman and chief executive officer of PG&E Corp., which owns California's
Pacific Gas and Electric Company
[Deregulation] will only be good for the consumer if, in the long term, it
provides lower prices and more choice of suppliers. I think the average
consumer, the residential consumer, or the homeowner, my neighbors, won't feel
that they get any benefit out of it if they don't see prices that they like
better, and if they don't see choice that they didn't have before. ...
Deregulating the electricity market, or even the natural gas market, has never
been the cause of residential consumers in any state that I know of. ... The
deregulatory forces were driven by two main things: large consumers of large
amounts of energy who wanted to be able to buy it directly--not through, in
essence, a middleman; and the ideological view that monopolies didn't need to
be in the power generation business if there was a competitive alternative that
appeared to be there. ...
Nettie Hoge
Executive director of The Utility Reform Network (TURN)
The [deregulation] legislation that was ultimately passed out of California was
basically channeled from the corporate headquarters of Edison and PG&E. It
was written by the people who work for them. It was part of a grand scheme
that was agreed to in the governor's office in the summer of 1996, between the
governor, the large customers of energy--that would be your huge industrial
users--utilities, and the independent energy producers, those folks who
ultimately ended up owning the power plants. There were no small consumers
anywhere near the room. ...
Electricity deregulation has been a failure on three counts. First of all,
prices are exorbitant. Second, reliability has suffered. We're having
blackouts. And third, we're on our way to putting aside environmental concerns
and letting the environment suffer so that we can build more plants. ... This
is a dismal failure on all three counts: fair prices, reliable system, and
environmental concerns. ...
Ken Lay
Chairman of Enron Corporation
So if rates keep going up in Texas and California, why do we want to
deregulate?
Over a reasonable period of time--and that's probably five years or
more--you'll ... have lower prices under deregulation than you will through
regulation. ... In virtually every industry with deregulation, we've seen 20
percent to 40 percent cost reductions. ... Those
economies, or those savings, are coming back to provide for [a] much stronger
economy, stronger job creation, productivity, and all the other things that go
with that. ...
Loretta Lynch
President of the California Public Utilities Commission (CPUC)
The problem here is ideology. It was a free market ideology that enabled--or
required--the state to step back, because the market would provide. But in this
market, you don't need to be an economic Ph.D. to know that when you've got a
fundamental economic necessity that has high capital barriers to entering into
the market ... and you have a long lead time, meaning you can't just build a
power plant tomorrow, ... then you have the classic economic theory for
boom-and-bust pricing. And when you have boom-and-bust pricing with a
fundamental economic necessity, the people who suffer are the buyers. That's
why, since the 1930s or the 1920s, we have always regulated the price of
electricity. ...
If you can show me how it's been done in other places successfully to protect
consumers and not just the market participants, and if you can show me that
there's been additional supply online that is environmentally friendly instead
of a whole bunch of [Edison] smokestacks, well, then I would be interested in
seeing that model.
But so far, what I've seen is folks who start designing a yellow brick road to
an Oz that doesn't exist in the United States. So far what I've seen are folks
who have a financial interest in getting us to go down that yellow brick
road--pushing it enough to start down the path--but they can't show me that
what's at the end of that road is actually good for consumers or for
California. ...
David Freeman
Energy advisor to California Governor Gray Davis
Something like electricity, that cannot be stored and is the oxygen of modern
civilization, cannot be allowed to fluctuate up and down in price and in
reliability and availability under a free market. We've had a vivid
demonstration that it is inherently a dumb idea if you don't combine it with a
public power presence to make sure that there's always a surplus. ...
The economists have a religious belief that there's no market price that could
be bad, and there's nothing that's regulated that could be good. But look at
this industry. We grew from nothing to having the best power system in the
world, and at the lowest prices under regulation. And what's happened under
deregulation? We've got the whole state of California ignoring their education
problems, ignoring everything and focusing entirely on fixing something that
wasn't broke. If that's not a vivid example of the fact that we shouldn't be
doing it, I don't know what is. ...
[Has] this country lived through a disastrous electric power era, from 1960
until 2000? Of course not. The electric power industry was one of our success
stories. The prices actually went down, in real terms, over that period. The
system expanded. ...
Jeff Skilling
Chief executive officer of Enron Corporation
I know that consumers will do better in a deregulated market. There will be
more price volatility in a deregulated market, because you have to send price
signals. You have to tell people to build more power plants or reduce
consumption. But over the long term, it will be much less expensive for a
consumer if they're in an open competitive market than if they're in a
regulated market, and we've proved that. ...
If you're asking me which way I'd rather have--would I rather have a guarantee
of being fleeced? That is the system we had in place all over this country
three or four years ago. Or you give me an open competitive market--where I
know people like Enron and people like Southern California Edison and people
like Con Ed in New York are battling each other for market share and for
profitability--I guarantee you that I am better served and better protected by
that open competitive market than by having a regulator watching over the
system. We've proven it. ...
In every place that there has been an attempt, whether you agree with the
way it happened or not, at deregulation--California, New England, Pennsylvania,
United Kingdom--there's been market abuse. The market's gone through the
ceiling. ...
No, that's absolutely not true. If you look at the prices in the U.K. since
they opened the market, the prices are probably down 40 percent. In Germany,
they opened the market; prices are down 60 percent. In Scandinavia; probably
down 40 percent. They were better market structures than we have in place.
So, no, I don't buy the premise. ...
There's a lot of feeling that it was a bad experiment and, as David Freeman of L.A. Water and Power said, "Look around the
country. Wherever there's public power, the lights haven't gone out."
Yes, and what are the customers paying for public power? There are enormous
subsidies to public power in the form of tax preferences. If you adjust for
tax preferences in public power and you look at prices--delivered prices to
consumers for public power against an open competitive marketplace--I guarantee
you the open competitive marketplace will be cheaper. ...
Ron Rattey
Senior staff economist at the Federal Energy Regulatory Commission (FERC)
Jeff Skilling, the CEO of Enron, says that wherever deregulation has come
in, prices have gone down.
It hasn't been the case so far, not in the U.S. Generally, prices have been
higher in most of the regions where we have these independent systems operating
... and where the price of electricity generally within those regions is being
set by auctions. Probably, during parts of the year, those prices are lower
now than they were in the past. But during peak seasons, in the summertime,
those prices have skyrocketed in just about all the [independent system
operators]. ...
Frank Wolak
Professor of economics at Stanford University, and chairman of the Market
Surveillance Committee of the California Independent System Operator
(ISO)
Where in the U.S. has deregulation been good for consumers?
I think it hasn't been that good for consumers in the United States, but I
don't attribute it to the fact that deregulation can't work. I attribute it to
the fact that we don't have regulators that know how to manage the transition
from competition to deregulation. ...
Is there anywhere in the United States where this process of deregulating
what had been a regulated and controlled market resulted in lower prices for
consumers, other than this two-year period in California?
Unfortunately, we really don't know yet. ... Much of the problem is not really,
as I say, the fault of deregulation. It's the fault of the fact that we won't
let the sort of things that are going to make the market work well actually
work. ...
Severin Borenstein
Director of the University of California Energy Institute and a professor of
business at the Haas School of Business at California-Berkeley
The regulated environment, for the most part, worked. But it worked in a very
inefficient way in terms of the amount of capacity we built, and it worked in a
way that gave us much higher prices than many people thought, and still think,
were really necessary. So the regulated environment, while stable, was
probably not as efficient as it could be. The goal was to get a more efficient
industry through market forces. ...
Once you have a certain number of power plants on the ground, running them in
an integrated fashion is more easily and effectively done in a single utility.
The savings that potentially come about in a deregulated market are in the
investment in new power plants--getting efficient investments, and avoiding the
costs when bad decisions are made.
So, for instance, if Diablo Canyon Nuclear Power Plant had been built in a
deregulated setting, it still probably would have cost way too much money, but
the shareholders would have paid for that, not the ratepayers. So the savings
for deregulation ... were never going
to come about through suddenly being able to run that set of plants more
efficiently. The savings would take place over a longer period of time, and
would take place by having more efficient investments.
The other potential savings from deregulation is through better pricing of
electricity. This could also happen under regulation, but it never has. The
reality is that the cost of producing electricity changes hour to hour, and our
electricity rates don't reflect that. We have no more incentive to save on a
hot summer afternoon than in the middle of the night. That's just a dumb way
to price electricity at the retail level, while we could change that through
real time pricing of electricity. ...
Pat Wood
FERC Commissioner
A market regulator will never be able to say, "We're going to shut that plant
down." Because no regulator is going to look the men and women in the eye and
say, "We're going to kick you out of a job." We just don't do that well; it
doesn't work. But a market does that relentlessly well, saying that this power
plant is more efficient that that one. And "efficient," during today's time
and age, means clean. It's clean and efficient running together. Because
quite frankly, if you're not clean, you've got to spend a lot of money to clean
it up, and that just makes it less efficient. ...
Jeff Skilling
Chief executive officer of Enron Corporation
We had a regulated system in North America for a long time that was delivering
electricity to consumers at twice what it was worth. We had a cost structure
that was ludicrous. You go around the world and look at other regulated
structures. There are blackouts in most of the world, consistent blackouts.
Where real markets are operating, there's rarely ever a supply shock. ...
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