that cALIFORNIA energy mess, NEWS FROM sACRAMENTO
<<Sticker shock -- Power users are asking: Where did the money go?
By Steve Wiegand
Bee Staff Writer
(Published Jan. 7, 2001)
Joe Consumer wants to make toast.
The Lights-On Utility Co. wants to make money. So it sends a stream of electrons to Consumer's toaster, he makes his toast, and eventually he sends the company a check for its services.
Until recently, that's all most people knew, or cared to know, about how the energy system works. But in recent weeks, as investor-owned utility companies began begging for rate increases to cover billions of dollars in higher energy costs, many Californians are asking a new question:
"Where the &$%$^%^ is all the money going?"
The short answer: all over the place. Some has gone to aluminum companies in Washington state that have discovered they can make more money by temporarily shutting down their plants and selling their unused electricity in California than they can making aluminum. Some has gone to the residents of El Paso, Texas, in the form of lower utility rates. And some is helping to make life more affordable for residents of Los Angeles.
But much of it -- maybe most of it -- is going to a handful of energy companies that were in the right place at the right time when the wrong decisions were made in California about how to run the state's energy system.
"It's going to those folks who bought the power plants and those folks who purchased and are arbitraging (buying and then quickly reselling) the output of those plants," said Nettie Hoge, head of the consumer advocacy group The Utility Reform Network (TURN), "and the profits they are making on it are absolutely obscene."
Setting aside the subjectivity of Hoge's characterization, there's no getting around the fact that some folks have made some serious dough. Third-quarter net income for six of the biggest players in the state's post-deregulation energy system went from $903 million in 1999 to $1.56 billion last year, a 73 percent increase.
"There's no question we've done well," said Tom Williams, a spokesman for Duke Energy Corp., whose Moss Landing power plant alone is estimated to have increased its revenues from $49 million in 1999 to $238 million in 2000, "and we have probably one of the most conservative risk-management strategies of any of the operators out here."
The handsome profits are the tail end of a tale about a state government effort that was as thoughtfully planned as a Florida election.
When lawmakers and then-Gov. Pete Wilson decided in 1996 to deregulate the energy industry, one of the provisions essentially required that the state's major investor-owned utilities -- Pacific Gas and Electric Co., Southern California Edison and San Diego Gas and Electric Co. -- get rid of at least half of their thermal and gas-powered plants.
The idea was that the more diverse the crowd that could make electricity, the more competitive the market would be.
But it didn't work out that way. In reality, the utilities rid themselves of even more of their power plants, because at the time they could buy power more cheaply than they could make it themselves. And only seven companies bought big plants in California. According to the state Energy Commission, they now account for 40 percent of electricity generated in the state. That gives them a big say in how much it costs.
The deregulation rules froze the amount utilities could charge customers, but did nothing to restrict the prices the utilities had to pay wholesalers for power often produced in the very plants the utilities once owned. As a result, the state's two largest utilities, PG&E and Southern California Edison, estimate they paid $11 billion more for energy last year than they were able to charge their customers.>>
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