Monday, June 20, 2005

Public Power & the Fixed Free Market

by Kyle Michaelis
Corporations, in and of themselves, are neither good nor evil. They just are. Their possible encroachment into public utilities, however, sets off all sorts of warning bells. Power is not a market primed for competition - the infrastructure demanded creates inherent monopolies. Mixing greed and monopoly power is never a good idea. Nevertheless, courtesy of the Omaha World-Herald, look at what an Omaha billionaire, an Omaha multi-millionaire, and the Republican Congress have in store for us - doing everything possible to shackle the energy-consuming American public to the profit motive like never before:
After decades of pushing to repeal a law that limits corporate investment in electric utilities, Warren Buffett's and David Sokol's best chance for victory will be on the Senate floor this week.

As the chamber takes up a comprehensive energy bill, stalled in past years over other disputes, the two Omaha businessmen will keep their fingers crossed. If the bill dies this time, Sokol, chief executive officer of MidAmerican Energy Holdings Co., said he is afraid the repeal will take a back seat to elections and may not come up again until the next president takes office in 2009.

"I think the U.S. Congress has the next two months to get it done," Sokol said while on a trip to Washington last week to push for the bill.

The Senate is expected to pass the energy bill, but many in that chamber are locked in a protracted dispute with House leaders, who insist that the bill waive liability for makers of a gasoline additive said to have contaminated groundwater. The two chambers must reconcile their views before the bill can be passed for a final time and sent to President Bush.

If such agreement is reached and the Public Utility Holding Company Act is repealed, Buffett has said he would invest $10 billion to $15 billion in the energy sector, known for its steady, though not spectacular, returns. Much of that investment probably would pass through MidAmerican, of which Buffett's Berkshire Hathaway owns 80.5 percent.

In past efforts to repeal the law, public utilities, like the Omaha Public Power District, and consumer advocates have expressed fear that without the law unscrupulous business executives would buy utility companies in faraway states and drain their coffers, diverting funds to risky, unrelated business deals....

The American Public Power Association, which counts OPPD among its 2,000 members, is taking a more neutral stance on the legislation than before. Though it believes investors and consumers would be better off if PUHCA remained in place, the Domenici-Bingaman agreement is a "workable compromise" and "an improvement over some that we've seen before," said Alan H. Richardson, chief executive officer of the association.

It would give the Federal Energy Regulatory Commission expanded authority to ensure that a proposed purchase or merger would not lead to subsidization of other businesses or encumber the utility's assets...

Sokol said repealing the law would be good for both the energy sector and consumers. "It needs to be fixed," he said. "Ultimately, it severely inhibits our ability for intelligent capital to be put to work in an industry that has massive demand for it..."

The requirements, which aimed to keep utility company owners local and small, made sense in 1935, when the law was enacted, Sokol said, but have not for some time. He estimates that it has blocked industry investments since the 1950s that could have helped modernize the system of distributing electricity, perhaps avoiding summer-time shortages and other problems that have plagued the system.

Consumer advocates, however, worry that the act's repeal could lead to consolidation that would increase electricity rates. That probably would not affect Nebraskans, the public power association's Richardson said, because the state's publicly run utilities largely have their own power sources.

Richardson said his main concern is the possibility that unscrupulous businesspeople will be attracted to the industry. "I would like to think that if PUHCA is repealed, every corporation that gets into the electric utility business will have someone of Mr. Buffett's reputation," he said, but instead "it opens the door to utility ownership by anybody who's got the money to play the game."

Does anyone remember Enron, the elephant in the room that doesn't even get mentioned in this article? Are we sure we want to make it easier for corporations to manipulate such an essential market? Despite all this talk about the development it might spur, what really would be the motive for such investment when the people are held so captive by their energy needs - civic responsibility? Are we really going to assume faceless corporations would enhance infrastructure and technology unless it also enhances their bottom line?

Buffett would invest $10-15 BILLION if this bill passed - isn't that horrifying? Why would he do that? Easy, because it's a low risk market with a fixed/trapped customer base that can be bled dry over a course of decades. What's not to like about those odds?

Why, they're not odds at all - the fix is in, and it's our own Congress that's selling us down the river.


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