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Steve, Following is the transcript from what I believe is the exact show that James Hughes asked about. Wanted you to review it before I send it out and also to confirm what constitutes Paul Kaufman's group and any others you might want to add. Paul Kaufman, Sue Mara, Alan Comnes, Jeff Dasovich, Sandra McCubbin and Marcie Milner. Also, I will send it to Mark Palmer, Karen Denne, Jim Steffes, Rick Shapiro. Let me know of any others. Thanks, Ann Date November 30, 2000 Time 07:00 PM - 08:00 PM Station PBS Location Network Program The Newshour With Jim Lehrer Ray Suarez, co-anchor: Finally, it's the latest hot idea for reducing energy costs. Twenty-three states have enacted legislation to deregulate electricity rates and sixteen others are thinking about it, but California's pioneering efforts have already provoked an angry consumer backlash. Spencer Michaels reports. Spencer Michaels reporting: In a San Diego strip mall, the owner of the tiny Youngling Oriental Vegetarian Market is having a hard time. Yuman (?) Young owes two thousand dollars to San Diego Gas & Electric--SDG&E--an amount he can't come up with. Like many San Diegans, his electricity bill has skyrocketed this year. So this is your bill in March, right? Yuman Young (Youngling Oriental Vegetarian Market): Right. Michaels: And the bill is-- Young: And see, in March, the bill comes to about four seventy-eight. Michaels: Then we have May. Young: In May, it... Michaels: Then we're up-- Young: ...goes to six seventy something. Michaels: Six seventy-four. Young: Yeah. Michaels: And then-- Young: And then... Michaels: And then we skip... Young: ...we skip a month. Michaels: ...June, but in July-- Young: And the--then in July, it goes to about thirteen hundred dollars. Michaels: Thirteen hundred dollars? Young: Yeah. Michaels: And the same in August? Young: And the same in August. Michaels: Over thirteen hundred dollars. Young: Yeah, right. Michaels: Young's main electricity expense is his frozen food freezer that he keeps at minus seventeen degrees. But people without such appliances have seen residential and commercial bills double and triple as well. San Diego is the first California city to suffer the effects of the deregulation of electricity, which was enacted by the state legislature in 1996. The theory was that by taking away the monopolies enjoyed by state-regulated utility companies, like SDG&E, new competition among electricity producers would result in a drop in rates. But since such simple market economics would take awhile, the legislature imposed a temporary rate freeze to protect most parts of the state from higher prices. In San Diego, the freeze came off this year letting the market set the price, a very high price. SDG&E is owned by Sempra Energy, where Stephen Baum is CEO. Stephen Baum (Chief Executive Officer, Sempra Energy): It's been a terrible shock to our customers, seeing real-time prices for the first time. And those prices are way out of sight because the wholesale market is broken and needs to be fixed. Michaels: The vast wholesale market is something new. California utilities used to own most of the power plants, the high-voltage transmission lines and the system to deliver power to homes and businesses. Under deregulation the utilities still deliver the power, but had to turn operations of the transmission lines over to a state agency. In addition, they had to sell their power plants. So now almost all power is sold to the utilities on a wholesale basis by producers or generators. And according to Baum, they charge what they can get. Baum: There's been a very large wealth transfer from the customers in the state of California to the generators. We don't think the market's workably competitive. There aren't enough players and there's not enough generation. Until that occurs, you're going to have dislocations at very high prices. Michaels: The situation keeps getting worse as California's population keeps increasing, especially in the hot central valley. Air conditioners and other appliances put a strain on a system already stressed by increased demand in other states where some of California's power comes from. According to University of California economist Severin Borenstein, deregulation has aggravated the already tight situation. Severin Borenstein (University of California, Berkeley): Production in the state has really been stretched and that does two things: One, is it naturally just creates a tight supply/demand situation that's going to drive prices up. The other thing it does, though, is it also puts the producers in a very strong position to push prices up even higher. And, I think, there's no question the generators are trying to make as much money as they can. Michaels: Duke Energy, headquartered in North Carolina, is one of the new generators in the California market. Duke spokesman Tom Williams says much of its power was sold before prices rose and that profits are plowed back into new plants. The utilities and the consumer groups seem to think that the generators are making a lot of money on this crisis. Is that true? Tom Williams (Duke Energy Corporation): Duke Energy sells the bulk of its power in the--in the forward market. It was sold a year ago for the plants we have in the state now. So the power's already been sold, and the price of natural gas has gone up two and a half times since last summer. So there is a very tight supply situation, but we're reinvesting our profits back into the market to fix the problem. Michaels: In fact, Duke is investing 1.1 billion dollars to modernize two inefficient power plants it bought from the utilities. As part of the deal it also had to buy this old PG&E plant in Oakland, which has been running overtime because of the power shortage. Over the last two decades only a few companies have actually begun construction of new power plants because of what they saw as the uncertainties of the regulatory climate. This plant near San Francisco, being built by Calpine, will supply enough electricity for half a million homes. It will be ready by next summer. Calpine vice president, James Macias, says his company predicted the shortage of power and took a risk. James Macias (Vice President, Calpine): You could see the fundamentals forming of the need for more--more power. There hasn't been a big power plant like this built in the state for--for decades. Michaels: Macias says the utilities should have contracted for power at lower rates before it was actually needed. He expects that the profits power companies are making now will decline as more power comes on line. Macias: We're doing pretty good. We're being rewarded for having the vision and the foresight to come in here and build this--this--this needed supply. But they're not going to last. As soon as this--more of the supply comes in, the prices will come down and they'll be--they'll be depressed again. They have to come down. This economy, again, can't support these high prices. Michaels: Although twenty new plants are in the planning stages, it takes five years to design and build just one. With very little additional supply in the immediate pipeline, the director of San Diego's utility watchdog group, Utility Consumers Action Network, says regulators must get involved to return rates to reasonable levels. Michael Shames (Consumer Advocate): They could have immediately put--reinstated a price cap. They could have immediately said, hold on a second folks. We're not going to tolerate this. We're not going to see a region like San Diego thrust into a depression. Michaels: But Michael Shames says some legislators and regulators were ruled by their uncompromising belief in a free-market ideology. Shames: There were a number of people, well-placed people, who were so ideologically driven to force competition to work in a market such as energy that they didn't want to look at the signs when they saw that the experiment wasn't working. They didn't want to acknowledge it wasn't working, and they were prepared to sacrifice a city, San Diego, a state, California, and possibly a country, in order to see their ideologically driven vision--vision work. (Clip from a TV commercial) Michaels: Shames' consumer group was so outraged at the price increases they bought TV ads and urged civil disobedience. Dianne Jacob (Chair, San Diego County Supervisor): Join me and other San Diegans and let's send a message. Pay only what is fair. When your SDG&E bill comes, pay what you paid last summer. That's fair. Michaels: At the California Public Utilities Commission, President Loretta Lynch agrees that regulators could remedy the situation, but she says it's not up to the state. Only the Federal Energy Regulatory Commission has the power to cut back prices. Loretta Lynch (California Public Utilities Commission): If the federal government allowed power plant owners to make a reasonable profit instead of an excessive profit, then that would drop the price of wholesale power. And if that price dropped we would not be in the pickle we're in today. Michaels: Federal Energy Regulatory Commission president, James Hoecker, replies that simply using price controls discourages investment in an industry that needs it. James Hoecker (Federal Energy Regulatory Commission): What my friend, President Lynch, has said reflects a kind of thinking that markets can never be made to work and that ultimately we have to resort to cost-based, profit kinds of regulation of utilities. And I think that this market has marched past that as an option. Michaels: In November, the Federal Energy Regulatory Commission proposed a major change. Utilities would not be required to buy power from the power exchange--a kind of stock market for electricity where prices have soared. Instead, the utilities will be able to buy directly from producers. The federal agency has launched an investigation into California's troubles, hoping for a long-term solution. Unidentified Woman: This legislation, today, has the ability to provide immediate and real relief to San Diegans. Michaels: The California legislature struggled this year with what to do, short term, for the people of San Diego. The debate centered around a proposal to cap electricity bills at sixty-five dollars a month, retroactive to June 1. Charlene Zettel (Assembly Member, Republican, San Diego): What is San Diego's problem today will be California's problem tomorrow. Rico Oller (Assembly Member, Republican, San Diego): You know who we can thank for this problem? You want to get right down to brass tacks? You can thank all of the knuckle-headed people in this legislature and in government, in general--in general, who have stood in the way of doing the smart and sensible thing that anyone would have the sense to do in the real world, and that is to provide for their future needs by increasing production. We need to build some facilities to produce power. Unidentified Man: All debate having ceased, the clerk will open the roll. All members vote who desire to vote. Michaels: The San Diego rate cap passed, but the state is still far from a solution. Higher electric rates are forecasted for the rest of the state as the caps come off in other cities. And even more troubling is the fact that the price rollback is being bankrolled by the utilities, since they still have to pay the generators for the power but can't pass those prices on to their customers. Economist Borenstein says other states better examine California's experience before proceeding with deregulation. Borenstein: I think most states that are deregulating right now, if they have a tight supply situation, are very likely to see spikes just like ours. The best advice I think for most of these states is to take a break, not move forward on their deregulation, watch the experiments that are going on in California and New York and Pennsylvania and Texas and a number of other states and learn from them, because we're learning a lot from them as we do this. Michaels: The success or failure of deregulation across the country will depend partly on easy access to power transmission lines so that electricity can be transferred more readily to where it's needed. The federal government is working on that problem. # # #
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