[Congressional Record Volume 147, Number 61 (Monday, May 7, 2001)]
[Senate]
[Pages S4412-S4413]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  ENERGY PRICES AND THOSE WHO BENEFIT

  Mrs. FEINSTEIN. Mr. President, last week I rose to speak about the 
businesses and consumers in California and the West who are facing 
exorbitant energy bills that could threaten the very livelihood of 
their businesses. These are people who have been hurt by the crisis. 
Today I want to talk about those who have benefited from the crisis.
  One can look at this chart and you can see something is wrong because 
the total cost of power in California in 1999 was $7 billion, the total 
cost in the year 2000 was $32 billion, and the projected cost in the 
year 2001 is $65 billion.
  That kind of a hike does not happen without someone profiting.
  Electricity is not an automobile. It is not a fur coat. It is not a 
home. Electricity is a basic staple of human life. If the street lights 
do not function, there are accidents. If people cannot run their 
respirators, death may result.
  California is now in a position where businesses are laying off 
employees, businesses are closing. I cannot emphasize enough how people 
are hurt by this.
  Let us look at an example of high power prices by taking one random 
day this past winter: December 15, 2000. On this day, electricity 
prices ranged from $429 a megawatt hour to $565 a megawatt hour, 
depending on the time of day.
  What makes that significant? Look back 1 year to 1999, same day, same 
month. The price was $12 a megawatt hour to $29 a megawatt hour. These 
are wholesale prices. This represents in 1 year an increase of 3,500 
percent and 1,900 percent, respectively.
  If we want to take a look at prices in a more recent month, let us 
look at February 2001. Wholesale energy costs in February averaged $361 
a megawatt hour, more than 12 times the average wholesale cost of $30 a 
megawatt hour in February of 2000.

  I mentioned earlier that the utilities, as a product of a very flawed 
State bill, had to divest themselves of their power-generating 
facilities. To show the difference, consider that when Southern 
California Edison had its generating facilities, it was selling power 
at $30 a megawatt hour. When Edison sold it to an out-of-State 
generator, the generator immediately turned around and charged $300 a 
megawatt hour. That is what is happening.
  Clearly, California's deregulation has turned out to be an abysmal 
failure for the State, for consumers, for businesses, and for 
California's investor-owned utilities, one of which is in bankruptcy, 
PG&E, and the other which is perilously close, Southern California 
Edison.
  Last week, the Federal Reserve estimated that, on average, each 
California household will pay $750 out of their pocket to compensate 
for higher energy costs this year. Additionally, over the past year, 
the natural gas component of the CPI rose by 68 percent in western 
metropolitan areas, boosted in part by a nearly 135-percent increase in 
the index in the San Francisco Bay area.
  However, having said this, not everyone has been a loser. Let us talk 
a moment about the winners because it is quite revealing.
  California's six largest nonutility energy suppliers are all based 
outside the State. Together they own or market roughly 17,000 megawatts 
of capacity. That is roughly a third of the total capacity in the 
State, and it is roughly enough for 17 million households. They are 
companies such as Dynegy, Duke Energy, Mirant, NRG Energy, Reliant, and 
Williams. These are not the only ones benefiting from the crisis. But 
for these six companies, profits more than doubled from 1999 to 2000. 
In some cases, the companies' subsidiary operating units doing business 
in California's wholesale power posted even larger gains than their 
parent companies.

  If you look at this chart, the gray is 1999 and the red is 2000. 
Williams Energy Marketing and Trading Company, a subsidiary of Williams 
Energy Services, which sells energy from California facilities, saw 
profits increase nearly tenfold, from $104 million in 1999 to over $1 
billion in 2000.
  For Reliant's wholesale energy business, which supplies energy to 
California and other competitive markets, operating income rose almost 
1800 percent, from $27 million in 1999 to $482 million in 2000. These 
are last year's numbers, but already these firms are again posting 
dramatically higher profits from this winter. Recent first quarter 
earnings announcements by energy companies reveal that firms continue 
to profit big time.
  For example, Calpine Corporation announced a 424-percent increase in 
earnings, raking in $94.8 million in the first 3 months of the year 
compared with $18 million last year.
  Mirant, formally Southern Company, announced record first quarter 
earnings of $175 million, up 84 percent, the equivalent of 51 cents per 
share.
  Williams reported a first quarter profit of $378 million, more than 
double its results a year ago.
  It is important to note that supply and demand have remained 
virtually the same over this period of time. There has been less than a 
4-percent increase in demand. The imbalances in the market do not 
justify these astonishing increases in price.
  One of the most amazing things to me is to see how little concern 
there is about what is happening in this very large State. Last week, 
the Federal Energy Regulatory Commission ordered the Williams Company 
to refund $8 million for withholding power from the California market 
last summer. This is the first action of its kind by FERC, who found 
that Williams intentionally and improperly shut down plants with the 
implicit understanding that withholding power from the market would 
drive up prices. We know it is happening now.
  Last April and May, Williams shut down two of its generating units in 
Long Beach and Huntington Beach that were obligated to sell electricity 
to the California grid operator, forcing the ISO to look elsewhere for 
power. Williams--this is the rub--Williams

[[Page S4413]]

would have been paid $63 a megawatt hour if the power plants were 
running; instead, the ISO had to spend $750 a megawatt hour to purchase 
electricity from other generating units. This withholding of power 
netted Williams $11 million.
  The Williams Energy Marketing and Trading Company has agreed to 
refund $8 million under the FERC order, although they profited $11 
million by purposely shutting down the plants to raise the price.
  Last week it was reported that Duke Energy was attempting to 
negotiate with Governor Davis to settle similar allegations about Duke 
plants that were off line. Documents released last week reveal that in 
March, Duke approached the Governor's office to offer a discount on 
some of the $110 million owed to the company in exchange for an 
assurance by the Governor that Duke would not be investigated for 
keeping plants off line. I think that is just dreadful. A major 
generator approaches the Governor and tries to make a settlement so 
that company will not be investigated. This evidence demonstrates that 
power has been intentionally withheld from the market.

  This is not an issue about supply and demand. Vice President Cheney, 
Secretary Abraham, and FERC Chairman Hebert argue if we try to regulate 
prices, companies will not build new plants. Traditionally, companies 
have earned 10 to 15 percent profit in the energy sector, but now we 
are seeing profits in the hundreds and thousands of percents. The 
administration says companies need these high profits to build new 
powerplants. But at what point does reasonable profit become price 
gouging?
  Again, electricity isn't a luxury good, it is a staple of life. 
Again, the Federal Energy Regulatory Commission has found these prices 
unjust and unreasonable. But the FERC will do nothing about it. 
Californians are outraged.
  Last week, the Lieutenant Governor of California sued Duke, Mirant, 
Reliant, Williams, and Dynegy in Los Angeles Superior Court accusing 
the firms of price fixing in violation of State antitrust and unlawful 
business practices laws.
  Today, the California State Assembly speaker and State Senate 
president pro tempore will sue FERC for the Commission's failure to 
ensure that rates are just and reasonable as required under the Federal 
Power Act. I support their cases. Again, I call on FERC to cap 
wholesale prices until new plants can come on line in California.
  The price gouging I have talked about today will have rippling 
effects that will affect everyone not only in California but likely the 
entire country. Already, Washington and Oregon are suffering from high 
electricity prices.
  If the FERC and the Federal Government continue to offer piecemeal 
solutions, the world's sixth largest economy, California, and the 
Nation's economy may very well pay the price. Now is the time to act. 
That is why Senator Gordon Smith and I have introduced comprehensive 
legislation to address the price and supply problems up to March of 
2003, at which time it is estimated there will be enough power on line 
to protect against the price gouging we are experiencing today.
  Today, California may well experience the first rolling blackouts of 
the summer. As a matter of fact, we have just learned that the Major 
League baseball games are going to go on a rain delay should there be a 
rolling blackout. The games will stop until after the blackout ceases. 
This is clearly a problem for California and other States.

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