How Niagara Mohawk and Enron brought energy deregulation to the US.

August 16, 2003 1:38 AM

How Niagara Mohawk and Enron brought energy deregulation to the US. Greg Palast explores the links between Mohawk, Enron, Bush I, and George Pataki and how their successful attempts at deregulation has left the US with a weaker grid and more expensive energy.
posted by skallas (44 comments total)

Bureaucrats crawled along the wire and, like me, crawled through the account books, to make sure the power execs spent customers' money on parts and labor. If they didn't, we'd whack'm over the head with our thick rule books. Did we get in the way of these businessmen's entrepreneurial spirit? Damn right we did.

And yet the lights still went off in 1965 and 1977. Funny, that.
posted by jaek at 2:35 AM on August 16, 2003

Jaek, and a single paragraph after "Did we get in the way of these businessmen's entrepreneurial spirit? Damn right we did." comes "But then came George the First. In 1992, just prior to his departure from the White House, President Bush Senior gave the power industry one long deep-through-the-teeth kiss goodbye: federal deregulation of electricity."

No holes in your cynicism!

My father used to work for an electricity company here in the UK, before the US energy company that bought the operation made him redundant (all thanks to Fairchild economics implemented by Thatcher, of course.) Beforehand, the regional electricity company my father worked for was the most profitable in the UK, with one of the best service records.

The American company that came in, took all the cash reserves back to the US (eliminating any large investments in the infrastructure here) slashed the workforce (to what is now a skeleton staff) and essentially ended the maintainance program which had kept everything running smoothly.

Previously, lines were inspected routinely (and was one of the major operations of the company) with the new owners, maintenance stopped entirely, and a "replace it when it fails" policy was brought in, to create more profits, at the expense of guaranteed supply to the people of the region (who were naturally not informed of this.)

We haven't felt the effects of this policy here in the region I live in. But I have no doubt that we will.

Oh, and I lent my father a copy of Greg's book, and he said it confirmed many of his suspicons about what was going on at the time.
posted by Blue Stone at 3:01 AM on August 16, 2003

Funny, that.

Dumb, you.
posted by quonsar at 3:09 AM on August 16, 2003

From (yeah ok) Islam Online:

"Investigators will also want to know whether 1990's deregulation, which has broken up local monopolies, prompted power firms to cut corners in search of profits.

"There are places in the United States where only a bare minimum of maintenance has been done since deregulation," said Guy Olivier, professor of electricity at the Polytechnic School of Montreal.

Professor T.C. Cheng, an electrical engineer and power supply expert at the University of Southern California, said such faults should not happen in "the world's richest and most advanced country."

"The system is designed to isolate a problem if a power plant fails for any reason to avoid this sort of catastrophic cascading effect of outages, so several things must have gone wrong to allow this to occur," he told AFP.

Cheng and other experts said that politicians and officials had allowed the electrical supply system to decay slowly by not upgrading it routinely and by instead waiting for problems to strike before acting."
posted by Blue Stone at 3:23 AM on August 16, 2003

This writer would be far more believable if he spent less time saying that power deregulation is a scam, and spent more time explaining what the scam is.

It really sucks to read someone rant about something, then find out that there really was no catch to the story; it really is just a long, drawn out, boring rant. And, unlike with my retort rant, it seems this author intends to profit from it.

Anyways, let's dissect it, shall we?

Faced with blackout because of Enron's destructive bid, the state was willing to pay anything to keep the lights on.

So, it's Enron's fault the state is stupid now, is it? If the knowledge that this is a bad idea is clear to a journalist, it should have been CRYSTAL clear to the buyer.

Their motto, "your money or your lights."

And the motto of a state run power company is "your taxes or your lights". I fail to see a difference.

...three power giants physically or "economically" withheld power from the state and concocted enough false bids to cost the California customers over $6.2 billion in excess charges.

If the bids were false, they must have been fraudulent. California did sue for being defrauded then, did it not?

It took until December 20, 2000, with the lights going out on the Golden Gate, for President Bill Clinton, once a deregulation booster, to find his lost Democratic soul and impose price caps in California and ban Enron from the market.

Seems they took a step better. They banned a fraudulent company.

George Bush the Second reversed Clinton's executive order and put the power pirates back in business in California.

If it happened this close to after the election, people from outside the country (such as myself) are assuming it was an election promise being kept by a (barely) elected leader.

Meanwhile, the deregulation bug made it to New York where Republican Governor George Pataki and his industry-picked utility commissioners ripped the lid off electric bills and relieved my old friends at Niagara Mohawk of the expensive obligation to properly fund the maintenance of the grid system.

Now that makes no sense at all. If this were true of capitalistic companies in general, then no products would have warranties.

They allowed a foreign company, the notoriously incompetent National Grid of England, to buy up NiMo, get rid of 800 workers and pocket most of their wages - producing a bonus for NiMo stockholders approaching $90 million.

Okay, assuming the author is correct on his facts, this doesn't make much sense from an economic perspective. I'll need an explanation of why this happened. Why a company would be worth purchasing to close up shop (was it sold for less than its true value? why didn't anyone else try to buy it, causing prices to naturally raise to the point shares are worth the value of the company?). And, along with that, why said company was able to produce power before this outage.

So too the free-market British buckaroos controlling Niagara Mohawk raised prices, slashed staff, cut maintenance and CLICK! -- New York joins Brazil in the Dark Ages.

Colour me stupid, but a power company doesn't make money when they're not supplying power, right? It seems the author is trying to convince us that this company is benefiting from ensuring that consumers will often endure blackouts. I need an explanation for this, as it flies in the face of common sense. While there are some stupid companies out there, it seems this power company was purchased by another well experiences company. That's not the sort of thing that imparts the necessary wet-behind-the-ears attitude that screws things up as bad as the article makes it out to be.

Succinctly, The vitriol present in that article could have powered all of the eastern Provinces and States alone.
posted by shepd at 3:29 AM on August 16, 2003

shepd, simply put, you haven't got a clue.
posted by quonsar at 5:36 AM on August 16, 2003

While purporting to go in depth, this article seems to make a lot of false assumptions and doesn't tell the whole story. Looks like a lot of rhetoric to me. Qualification (for those on the left sidde of the fence, just letting you know up front): I work in the nuclear power industry, so I at least have some understanding from whereof I speak.

Looking at the national grid issue...there's a way to cure this problem but there's gonna be a lot of whining no matter how the solution is approached. To wit:

1) If you regulate the system more heavily, power costs WILL go up. Dramatically.

2) The best way to improve the grid is to modernize routes and add new capacity. Funny though, every time they try to install high voltage corridors the environmentalists sue 19 different ways and the homeowners and cities scream "Not in MY backyard!"

3) See argument #2 revisited. New power plants would be helpful here, but once again, NIMB. And of course, yes, I am a proponent of nuclear energy. Reducing the distance that power must travel and raising voltage levels improves reliability and lowers costs due to losses.

4) See argument #1 revisited. One way to improve the grid is to consolidate and combine MORE of the power generators. Some companies clearly do a better job at maintenance than others. But, this benefit is not without cost - I live in an area of the US where the average cost of power is in the lowest cost quartile. I'm not sure I would want to pay increased rates if my power generator merged even with contiguous companies. By the way, this week's blackout was NOT caused by a capacity issue but by the cascading interconnects between power systems.

5) See arguement #3 revisited. A lot of power generators have gone to gas fired turbines for addressing peak loads. However, this simply shifts the cost of energy again...I think you can expect to see record heating costs this winter, especially in the northeastern US. Additionally, many residential customers in that region have been slowly switching to natural gas from heating oil due to cost and convenience. The costs are about to go up, though.

My solutions? Accelerate the technology to dispose of nuclear waste - there are promising methods in development. Open up Yucca Mountain and get it on a faster track. Streamline the building and licensing process for nuclear plants of smaller and safer designs (for which proven technology already exists). Work with environmental sectors on various types of projects...there has got to be some give and take here to benefit in the best possible way (there are still some good sites for smaller dams in the eastern US...pumped storage facilities for peak shaving...alternative energiy generation...etc)

Lastly, make it easier for people at the consumer level to get off and also CONTRIBUTE to the grid. Most people do not know that if you produce power at your homesite by solar, wind, hydro, or other means - power companies generally have legal obligations to buy your excess power at market rates. It's easier to get off the grid than most people realize, but there is no single comprehensive and practical guide to making this information available other than in bits and pieces. Let's make this process easy and simple on a national level.
posted by insulglass at 5:42 AM on August 16, 2003

Somebody piss in your cornflakes this morning, quonsar?
posted by MrBaliHai at 5:48 AM on August 16, 2003

Errr... but the most current "cause" of the blackout is now in Cleveland, and not in the Niagara/Mohawk grid. And in a 345,000 volt transmission line, not in anything under the direct control or maintenance of a generator company in any case.

The problem can still be linked to deregulation and competition, but not because THOSE EVEEIL GREEDY BASTARDS!!1! did it. The way electrictity was deregulated to allow for competition created a split between power generators and power transmission, so that anyone could generate some megawatts and use the existing power grid to transmit them. So power plants were sited where it was convenient for the generating firms, even if that didn't make sense from a transmission-line point of view, and the transmission grid hasn't caught up.
posted by ROU_Xenophobe at 5:48 AM on August 16, 2003

shepd, I'm not sure you completely understand how this works. Let's dissect:

So, it's Enron's fault the state is stupid now, is it?

No, but Enron took a questionable idea (deregulation) and used it to rob California blind. Deregulation unfortunately assumed a playing field in which people didn't cheat on a massive scale.

And the motto of a state run power company is "your taxes or your lights". I fail to see a difference.

You fail to see the difference because you may not have read this line about FDR's regulatory laws: The laws banned power "trading" and required companies to keep the lights on under threat of arrest -- no blackout blackmail to hike rates.

If the bids were false, they must have been fraudulent. California did sue for being defrauded then, did it not?

Unfortunately, FERC is taking the position that even though the rates may have been artificially high, the contracts California entered into (in order to keep the prices from spinning further out of control) are valid and unbreakable. Basically, Enron terrorized the state so they could get contracts for what is essentially "protection money".

Seems they took a step better. They banned a fraudulent company.

Several years too late, and well after the damage had been done and Ken Lay flitted off with California's money.

If it happened this close to after the election, people from outside the country (such as myself) are assuming it was an election promise being kept by a (barely) elected leader.

I'm not even going to touch that one.

Now that makes no sense at all. If this were true of capitalistic companies in general, then no products would have warranties.

Power companies are more like monopolies, and thus don't have to worry so much about warranties.

Okay, assuming the author is correct on his facts, this doesn't make much sense from an economic perspective. I'll need an explanation of why this happened. Why a company would be worth purchasing to close up shop (was it sold for less than its true value? why didn't anyone else try to buy it, causing prices to naturally raise to the point shares are worth the value of the company?). And, along with that, why said company was able to produce power before this outage.

You buy the company and then ditch the "redundant" employees. You are now producing significantly more power for a minimal increase in payroll. Plus, stockholders love it when payrolls are slashed. You as a major stockholder now make a huge profit because you fired a bunch of people. Sure, it's an economic disaster for the little guy, but in business the only economy that counts is that of the CEO and the shareholders. In a world where layoffs equal increases in stock value, it makes perfect sense to buy and destroy.

It seems the author is trying to convince us that this company is benefiting from ensuring that consumers will often endure blackouts. I need an explanation for this, as it flies in the face of common sense.

It works like this: run the company as cheaply as humanly possible, and hope that it doesn't fall apart on your watch. If it does, wring your hands and talk about how much it will cost to upgrade the system or build more plants. Fear of another economically devastating blackout will motivate people to hand you chunks of money on a silver platter (see: deregulation, California). See? Easy money.
posted by stefanie at 7:08 AM on August 16, 2003

Power to the People! (at what cost?)...
posted by Postroad at 7:15 AM on August 16, 2003

shepd, I think you do have a clue. And here's what Reason thinks.
posted by trharlan at 7:34 AM on August 16, 2003

The whole transmission argument exists purely to fuel energy trading. If we were arguing that we need more transmission capacity so that we can turn Texas into a giant nuclear reservation and stop trying to cram coal fired plants down the throats of the eastern cities it would be one thing. But we're not. Transmission as a single point solution only enables the energy traders to continue to create artificial shortages and skim money off the top as middlemen.
posted by shagoth at 9:12 AM on August 16, 2003

I know I'm going to get screamed at for saying this, but Howard Dean (days before the blackout, as part of his presentation of his larger environmental platform) speaks pretty well to these issues. I'm sure that grid modernization is key--and I'm sure it has some major momentum as an issue right now--but Dean's emphasis on energy conservation and efficiency show that (despite the obvious need for long-term planning) achieving short-term results needn't be that complicated.

Conservation - principally through efficiency improvements - has to be a centerpiece of our national energy policy. All it takes is ingenuity, and Americans have that in abundance.

For instance, today, technology helps us keep cooler while consuming less energy. American businesses should be world leaders in building highly efficient air conditioners, refrigerators, light bulbs, industrial motors and other appliances used in homes and businesses. Unfortunately, the Bush-Cheney Administration delayed and then weakened efficiency standards for air-conditioners. We can do better.

Energy efficiency is a centerpiece of my environmental plan because I know it works.

During my tenure as Governor of Vermont, we created the nation's first state-wide energy efficiency utility. So far, our Efficiency Vermont program has prevented one million tons of greenhouse gas emissions while generating $66.8 million in energy savings for customers. Businesses have seen an average return of 65 percent on their energy-efficiency investments.

Today, Efficiency Vermont meets 2 percent of Vermont's electricity needs. It's on track to meet 10 percent in the next eight years. If we could match that nationally - and we can, with help from the federal government - we'd need 200 fewer new power plants over the next decade. We could help with federal matching funds for state energy-efficiency programs or by creating a national Energy Efficiency Performance Standard to be met at the state level.

Plus, he talks about having 5, 20, and 100-year plans for the environment, as well as using massive infrastructure projects to create jobs (one example is rural broadband). Grid improvement would fit this model well, and if it was done publically we could actually feel like the public interest was served, as opposed to during the "dark" days of deregulation.

Nonetheless, we all know what can happen when your energy policy is drafted in secret by energy companies.
posted by Ignatius J. Reilly at 9:29 AM on August 16, 2003

I lost my power, and while 50 million people were without it, I couldn't help thinking that this MUST be enough of a fuckup to create some groundswell of support for people who've been asking (then demanding, finally suing) Dick Cheney's list of robber-barons, who determined our present energy policy.

I marvel at people's willingness to defend policies whose details are conspicously kept from their view. I understand the instinct to choose the winning side of an argument (and to be sure, the GOP is waxing most powerful, irrespective of boobery, incompetence, petulance, fraud, or untruths they may commit.) But one of the things that gave us the greatest admiration in the world was when we held Nazis accountable for their actions in Nuremberg. Should the GOP fall from grace as their similar pyramid-scheme of government now fall, what would happen to these people?
posted by Busithoth at 9:44 AM on August 16, 2003

what would happen to these people?

I say we deregulate those motherfuckers.
posted by Ignatius J. Reilly at 10:02 AM on August 16, 2003

The whole transmission argument exists purely to fuel energy trading. - Shagoth

Wellllllll, not quite. That's sort of like buying gas for your car and then deciding that you can't drive your car on certain roads - but you are willing to siphon gas out of your car and trade it to another car from that area just so you can drive on THEIR roads and they can drive on YOURS. Instead, energy trading grants rights and priveleges to utilize resources already available and in surplus.

I hope that you are not like most people who believe that electrical energy is stored. The vast majority of electrical generation in this country is consistently produced in terms of megawattage at any given time. Energy trading is vital to PREVENTING the very blackouts we are talking about.

Demand for power does NOT remain consistent due to daily and hourly fluctuations. As a simplified example, more people run their coffee makers between the hours of 6 to 8 AM, creating a greater demand for power than in the hours of 4 to 6 AM. Also, more coffee is consumed on weekdays than on the weekend when people sleep in later than 8 AM. You can throw in seaonal factors as well, more hot coffee will be consumed in the winter.

Therefore, while the power utilities capacity to generate is essentially remains constant, the demand changes wildly throughout the hours and days. Furthermore, in our simple example above, the demand for power can "move" throughout the grid as the Eastern time zone goes to work and the Central time zone gets out of bed.

Energy trading policies and agreements allow power producers to shift their surplus power to other utilities who are undergoing more demand than they can reasonably supply. Case in point - the electric utility I work for purchases market rate power, despite having several thousand megawatts of excess capacity at any given time. They may purchase the extra power because it might be cheaper to procure another utility's surplus instead of firing up a gas turbine to run for a few hours. They may also choose to purchase power more suitably located to the demand on the fringe of their "footprint" than transmit power across several hundreds of miles of grid transmission lines.

The truth of the matter is....that uptime on the grid has been remarkably good. Will it remain this way in the future? Not unless the grid's capacity to transmit power is addressed. There's no question that both demand and generation has outgrown the transmission capacity. The system isn't broke, but it does need to be unfettered and tweaked.
posted by insulglass at 10:15 AM on August 16, 2003

Davis called Reliant Corp of Houston a pack of "pirates" --and now he'll walk the plank for daring to stand up to the Texas marauders.

Why does Texas having its own power grid of all the States?

but a power company doesn't make money when they're not supplying power, right?

Nicola Tesla's, the inventor of radio & polyphase current; Bernard Baruch told J. P. Morgan, ‘Look, this guy is going crazy. What he is doing is, he wants to give free electrical power to everybody and we can’t put meters on that. We are just going to go broke supporting this guy.’ And suddenly, over­night, Tesla’s support was cut off, the work was never finished.”
From a technical and economic point of view, Morgan could not understand how free information and/or power could yield returns. And whether it was Baruch or not who warned Morgan, Tesla himself had voiced the opinion boldly, a decade earlier in the Sunday World, that by providing a reservoir of electrical energy throughout the earth through his apparatus, “all monopolies” that depend on conventional means of energy distribution — that is, through wires, “will come to a sudden end.”
posted by thomcatspike at 10:29 AM on August 16, 2003

what would happen to these people?

I say we deregulate those motherfuckers.

regulators......mount up.....[/warren g voice]
posted by oliver_crunk at 10:32 AM on August 16, 2003

quonsar, perhaps you'd like to enlighten rather than put down.

You're being even less clear than the author (if that's possible).
posted by shepd at 10:47 AM on August 16, 2003

"The American company that came in, took all the cash reserves back to the US (eliminating any large investments in the infrastructure here) slashed the workforce (to what is now a skeleton staff) and essentially ended the maintainance program which had kept everything running smoothly."

Really?

See, the same thing happened here, only Utah Power & Light was purchased by Scottish Power.

Funny how the evil capitalists aren't just from the U.S., isn't it?
posted by mr_crash_davis at 10:52 AM on August 16, 2003

Remember Sam Farr and Cheney's secret energy meetings? The people at buzzflash do.
posted by skallas at 10:55 AM on August 16, 2003

>No, but Enron took a questionable idea (deregulation) and used it to rob California blind. Deregulation unfortunately assumed a playing field in which people didn't cheat on a massive scale.

If deregulation is questionable, why does it seem everyone supports the phone companies doing it?

The results pre-deregulation of the phone company were massive blackouts. They can happen at any time.

The differences between the design of the phone companies' systems and the power companies' systems is not really that different when looking at them from a higher level.

>The laws banned power "trading" and required companies to keep the lights on under threat of arrest -- no blackout blackmail to hike rates.

Yikes! Arresting people because they don't want to go to work?!?! Holy crap, is the US really such a fascist police state as this?

>FERC is taking the position that even though the rates may have been artificially high, the contracts California entered into (in order to keep the prices from spinning further out of control) are valid and unbreakable.

Seems to me then that the state let itself get taken for a ride, and that while they got ripped off pricewise, they didn't get defrauded.

>Power companies are more like monopolies, and thus don't have to worry so much about warranties.

Hmm, that's interesting. Shortly after deregulating and privatizing gas in Ontario, people had many companies to choose to purchase service from. That means there's no monopoly.

Is power in the US only supplied by one company? How can that happen if they (according to the author) won't do their job? Why didn't another company step in and do a better job? Why did capitalism totally fail? This is most unusual and without those questions answered, I can't understand the authors rantings.

>You buy the company and then ditch the "redundant" employees. (etc)

Okay. Everything you've said there makes sense, however this is a most unusual strategy for a company that is enjoying a constantly increasing sales base. This is normally the action of a company that's getting close to bust.

Either the power company, while public, was slowly going bust (in which case you could either pay much higher taxes and fix it, or enjoy the same power server we have today, which appears to be the choices offered today) or the stockholders were lied to. Beats me which! But I do know if it's the latter, there'll be hell to pay by the company, and it WILL end up better managed (or it'll just totally go bust).

>It works like this: run the company as cheaply as humanly possible, and hope that it doesn't fall apart on your watch. If it does, wring your hands and talk about how much it will cost to upgrade the system or build more plants. Fear of another economically devastating blackout will motivate people to hand you chunks of money on a silver platter (see: deregulation, California). See? Easy money.

Seems to me it would just motivate someone with enough money to compete. That's how it's always worked before. It's worked well for other massively monopolistic companies forced into deregulation before (Bell/AT&T).

Can anyone explain why (by the author) it isn't now?
posted by shepd at 11:09 AM on August 16, 2003

good post. I'm surprise he didn't mention that a bill was put before congress back in 2000 to upgrade the system, but was shot down by Bush.
posted by destro at 11:15 AM on August 16, 2003

Somebody piss in your cornflakes this morning, quonsar?

The milk went sour during the power failure?
posted by srboisvert at 11:22 AM on August 16, 2003

>If deregulation is questionable, why does it seem everyone supports the phone companies doing it?

You can ask that of any company that has been deregulated. Lets see, the phone companies are still pretty regulated, they were just opened slightly more for competition. CLECs, et al still have to play by some very real and enforced rules. Also, there's *much* criticism on phone deregulation also, especially with recent deals that give the local monopolies more power and hurt competiting phone and DSL providers. Here in Illinois its tough to get DSL service at ALL in many parts right out of Chicago just because SBC/Ameritech wanted pro-SBC legislation before it started expanding its DSL infrastructure. It never got it, the cable companies have moved in the fill the gap. Sure a cable modem is $60 now from comcast and DSL can be gotten for at least 20-30% less if SBC allows you to have one.

Secondly, the phone companies run off electricity and are switch based, and cannot distribute their load to other parts of the country: essentially they're nothing like a power grid. Not to mention power is much more essential to basic services than the phone or net will ever be.

>Seems to me it would just motivate someone with enough money to compete.

Maybe you haven't noticed the cronyism and corruption and the inability of the feds to do much about it. Probably because they're part of it. See Cheney/Enron secret energy meetings. Not to mention deregulation is big in GOP circles and guess who's controlling all parts of the federal government as I type this?

>most unusual strategy for a company that is enjoying a constantly increasing sales base.

What makes you think that? If efficiency can be attained then it usually is tried. If it turns out to be reckless, then so what, companies fold all the time. Electricity shouldn't be seen as just another consumer widget for obvious reasons.

destro: see this post of mine.
posted by skallas at 11:25 AM on August 16, 2003

See, the same thing happened here, only Utah Power & Light was purchased by Scottish Power.

Funny how the evil capitalists aren't just from the U.S., isn't it?

Well, no, its not funny really.

Britains energy and utitility companies were "deregulated" (privatised) during the 80's, and what did we get for it? Higher prices, confusion and uncertainty in the marketplace (why would I want to shop around for my gas and electricity?), and far higher prices.

Some things just do not need the free market.
posted by influx at 11:41 AM on August 16, 2003

shepd: Yikes! Arresting people because they don't want to go to work?!?! Holy crap, is the US really such a fascist police state as this?

Losing power is a pretty big public safety issue. I don't think requiring that it be kept running is evidence of a fascist police state. If workers at the local pencil factory were required to go to work, that'd be one thing. A strike of pencilsmiths is unlikely to lead to the death of innocent third parties. Not so for power companies.
posted by rusty at 11:45 AM on August 16, 2003

>Arresting people because they don't want to go to work?!?! Holy crap, is the US really such a fascist police state as this?

I hear you fellow hippie, free those enslaved into our military now!

/smartass off
posted by skallas at 12:14 PM on August 16, 2003

Why didn't another company step in and do a better job? Why did capitalism totally fail?

The market fails in instances of vital public interest with some frequency. It has to do with the fact that the invisible hand doesn't really have a brain attached. The market is the single most kick-ass social system around, IMHO, but trying to let it solve problems and accomplish goals is sort of like waiting for evolution to bail you out.

In this particular case--and with public utilities in general--the reason that more companies don't jump into the fold is infrastructure. The original utility gets a sweet deal on the existing wires, pipes, transformers, whatever, and is able to instantly achieve a position that can only be "honestly" reached by another company after putting millions or billions into infrastructure. A major selling point of deregulation (to the companies) is that they don't have to put up any of the investment in building the shit. The taxpayers pay for that, then the coroprations get to come in and make money. It's bullshit.
posted by Ignatius J. Reilly at 12:42 PM on August 16, 2003

Thanks Ignatius, you've given an explanation to the conundrum, which is what that article was sorely lacking.

However, that being said, why would the government be so stupid to sell an asset for less than its real value?

Then again, looking at recent elections, perhaps we only have ourselves to blame. :-/
posted by shepd at 3:20 PM on August 16, 2003

This thread is unusually lacking in nonsense and the old ad hominem, and long on informed viewpoints. Where's the beloved InJokeFilter of old? At any rate, regarding the following from Mr. Palast's masterful use of the sorites:

In Brazil, Houston Industries seized ownership of Rio de Janeiro's electric company. The Texans (aided by their French partners) fired workers, raised prices, cut maintenance expenditures and, CLICK! the juice went out so often the locals now call it, "Rio Dark."

That's not quite an accurate picture of what happened in Brazil generally nor what's going on there now. The apagão of 2001 resulted from an unchecked privatization of an energy grid running on hydroelectric reserves drawn from a watershed containing 25% of the world's fresh water supply. Those reserves were simply drained into the ocean as "unnecessary" as a crazy quilt of foreign players bet the farm on natural gas cogeneration — whereupon the price of Bolivian natural gas skyrocketed. Outages in major Brazilian cities now are relatively infrequent and of short duration, however. The LIGHT company of Rio is running large losses, but keeping up with its foreign debt, and the "n" (for nationalization) word is carefully avoided.

For the real aficionado, can I recommend a little newsletter with the delightfully ominous title, Restructuring Today?
posted by hairyeyeball at 4:17 PM on August 16, 2003

why would the government be so stupid to sell an asset for less than its real value?

define "real value". but first, define "value".
*grins wickedly*

shepd, i wasn't picking on you, i just recognized early on that you experienced a dearth of familiarity with the topic, as do i. i cannot enlighten you because i do not know what i'm talking about in this area. i do however, recognize that basic economic theory isn't applicable to government-granted monopolies, which is what public uitilities in the usa have traditionally been. i also didn't realize it was a mystery to you that "competitors" in this "industry" have nothing to sell - the original utility is merely forced to allow others to "sell" the use of the infrastructure. apparently you thought every "phone company", and now every "power company" was out there buying up right-of-way and erecting its own transmission lines, (and can you imagine the sheer ugliness resulting from that?) while i assumed it was common knowledge that they aren't. in any event, your persistent questioning resulted in several informative posts from which i'm sure we both have learned a lot. damn you.
posted by quonsar at 4:25 PM on August 16, 2003

Sometimes the chip on one's shoulder speaks louder than one's words.
posted by clevershark at 4:53 PM on August 16, 2003

I thought I'd throw in a few words on why a company might buy up a smaller company and trash them...

Carl Icahn bought TWA in the 80's. Whether or not it was his original intention, when it no longer was a cash cow for him, he started liquidating the company. Not by selling planes, but by milking it for all it could give, so that salaries, maintenance, etc were cut to the bone. Then he started to talk about shutting the whole company down, but the employees raised a stink and bought the company from him. A company that had many service issues, and a rather old fleet. But Carl got his cash, and what's left of TWA's physical plant, so to speak, was sold to American when the employee-run version of TWA couldn't get the company out of its downward spiral.

Basically, someone can buy a company or utility, use its profitability as a golden goose, trim it down to bare functionality, and then sell it - the combination of a couple years' profit, all the money made from "belt-tightening", and selling the corpse adds up to a hefty sum over the purchase price.

Full disclosure: I was laid off from a company owned by Icahn last year (which hadn't had a layoff since '62 or so), so I'm a bit bitter.
posted by notsnot at 7:24 PM on August 16, 2003

The problem that Ignatius J. Reilly addressed and explained very well refers to negative and positive externalities. I would be somehow reluctant about the "invisible hand that doesn't have a brain attached"; one might conclude that nationalization is the best solution, when the main problems in a newly deregulated market are related to asymmetric information: e.g. Enron had/got more bargaining power than the state of California.

why would the government be so stupid to sell an asset for less than its real value?

The main reason relates to the fact the government is run by people and some of them might be influenced by bribes -- this is not mainly about US, it is more common in the developing world, especially now when World Bank and IMF put a lot of pressure on the governments to deregulate the markets.

One other reason is that when public utilities are sold they are under-evaluated. In many cases only the replacement cost (how much it would cost to rebuild the plant, etc.) is calculated and considered to be the "real value", neglecting the business prospects (on sale is not just equipment but a business, e.g. the supply of electricity to the population). What saddens me is that the guys in charge of the selling do not know about these issues (the level of knowledge of economics is lower in the developing world) and they are happy with the first price they get.

I know of a certain case of water supply privatization where World Bank worked "closely" with the town council, WB providing expertise to the seller, i.e. the town. The guy from WB was not interested in the "captive market" characteristic of the business (people cannot buy running water from other company), thus obtaining a lower value for that business.


Lastly, let's not forget that power outages are part of the complex phenomena (forest fires, six degrees, power laws, etc.). The cause of recent blackout might be seen as "the fragile side of HOT complexity".
posted by MzB at 8:50 PM on August 16, 2003

The blackouts seemed to have gotten people talking about the dangers of deregulation, which is nice. Maybe we can all chew on the fact that we've been on a media-deregulation-induced "blackout" since around 1996.
posted by Ignatius J. Reilly at 11:50 PM on August 16, 2003

The problem is that cynical pro-deregulators, and the huge huge money that backs them, are also exploiting this crisis via their media lackeys to complain that there wasn't enough deregulation.

This of course will pick up steam as soon as one of big money's "private" think tanks comes up with an easily understood way to blame government regulation for the blackout.

And they will. Soon.
posted by sic at 5:28 AM on August 17, 2003

The problem is that cynical pro-deregulators, and the huge huge money that backs them, are also exploiting this crisis via their media lackeys to complain that there wasn't enough deregulation.

This of course will pick up steam as soon as one of big money's "private" think tanks comes up with an easily understood (that is to say, sound byte repeatable) way to blame government regulation for the blackout.

And they will. Soon.
posted by sic at 5:41 AM on August 17, 2003

Sorry for the double post. Technical difficulties unrelelated to government regulation.
posted by sic at 5:57 AM on August 17, 2003

Uhhh, sic, rppi is a non-profit education centre. You might want to back up your claim a bit better when you're accusing them of being specifically paid to lie.

Greg Palast is strongly supported by GNN, a group that has its own very strong bent. There's a lot of mis-information going down here from both sides.

He's also, according to the Wikipedia, a little bit nuts, IMHO, thinking that a company "maintains a file on him, including false data regarding his sex life, which they distribute as propaganda against him (1-p.112)".

Also importantly, quotes regarding Greg Palast:
Daily Mirror -- "The Liar! Sleaze Reporter!"
Tony Blair-- "Palast's reports have not one shred of evidence!"

And then there's his argument that the election was purposely tampered with.

"Palast argues that ChoicePoint has a bias in favor of the Republican Party and knowingly used inaccurate data during the 2000 Election."

He's also been wrong about matters dealing with electricity before:

"In 1988, Palast directed a US civil racketeering investigation into the nuclear plant builder Long Island Lighting, in which a jury awarded the plaintiffs US$4.8 billion, however, New York's chief federal judge had the verdict thrown out."

Worse than that, the luddite comments by him listed there sicken me.

"Come by my town today and count the strip malls and fluorescent signs directing you to, "Bagels Hot! Cars Like NEW No Down-Pay ent! Dog Burger!", where corn once grew."

Don't like it? Don't go there. Open up a farm if that's what floats your boat. Some (in fact, most) of us prefer technology and commerce to boring farm work.

In short, Greg Palast is necessary in our society, but complaining that the other side are just media lackeys isn't a good idea when their competition is Mr. Palast. It's like saying insurance companies were right on the money, and Firestone Tires are wrong. Neither is an accurate description.
posted by shepd at 9:36 AM on August 17, 2003

I insinuated that RPPI is a media lackey, I did not say they were being "specifically paid to lie". But I can understand the mix up.

The monied interests are represented by the essay presented on RPPI by Ken Silverstein Director of Energy Industry Analysis, Utilipoint. The Utilipoint web site, which includes a lists of their clients, is linked to in my post. I encourage readers to come to their own conclusions on who they represent.

Anyway I had never heard of Greg Palast before this post, so my intention was not to defend him. That said, if two entirely discredited entities like the Daily Mirror and Tony Blair call him a liar, I'm not likely to be impressed.
posted by sic at 10:27 AM on August 17, 2003

Greg is definitely a controversial figure, he did write a book criticizing the US government called "The Best Democracy Money can Buy" afterall. That doesn't mean his writing is all crap as much as it has a strong POV.

Robert Kuttner talks about the downsides of deregulation in the NYTimes with much less hyperbole.
posted by skallas at 12:03 PM on August 17, 2003

"In 1988, Palast directed a US civil racketeering investigation into the nuclear plant builder Long Island Lighting, in which a jury awarded the plaintiffs US$4.8 billion, however, New York's chief federal judge had the verdict thrown out."
Anyway this doesn't mean he was wrong. Apparently he won a verdict in one court and then had it overturned by another judge. In the end he may have lost the suit, but that is quite a different thing than saying he was wrong. Having guilty verdicts overturned in courts friendly to the defendant is common when the defendant is extremely rich and powerful.

As far as the new electronic balloting machines (Choice Point) I suggest than anyone who wishes to maintain the integrity of democracy in the USA look deeper into this issue. Do an internet search; there is definitely something rotten in Denmark.

Also, the luddites were an anti machinery movement that cropped up during the Industrial Revolution in England spearheaded mainly by artisans who were (correctly) afraid of losing their livelihood to the automation of machine driven factories. Nowadays, "luddite" is often used to describe somebody who is fiercely anti-technology, for instance, the Una bomber. I fail to see where Palast made "luddite comments". The comments that you cite seem more anti-capitalist and anti-bad taste but not luddite. If you refer to his suspicions about Choice Point, well, suspicion is merited on that particular issue and does not make one a luddite.
posted by sic at 2:28 PM on August 17, 2003