Energy Companies Win Permission To Steal $3 Billion From Customers

Westerners are stuck paying $3 billion to energy companies that colluded to gang-rape the free market. California, Washington, and Nevada were planning to return the money to customers, but the Supreme Court recently ruled that the industry manipulated the market, fair and square.

The California Public Utilities Commission and state officials believed that crisis-era pacts with San Diego-based Sempra Energy and others were costing consumers an extra $1.45 billion to $3.08 billion — an amount they had hoped to return to electricity customers, possibly by reducing or eliminating future charges.

A Washington utility had hoped to get relief from a nine-year power contract with Morgan Stanley Capital Group. Under that contract, the Snohomish County Public Utility District is paying $105 a megawatt-hour, well above the historic norm for the Pacific Northwest of $24 a megawatt-hour, but also well under the $3,300 a megawatt-hour hit at the peak of the energy crisis that spread beyond California’s borders, according to the court’s synopsis.

Justice Scalia scolded the states for whining about “buyer’s remorse.” Roger Berliner, a lawyer for Nevada utility Sierra Pacific Resources, applauded the Justice for his unrivaled ability to blind himself to reason:

“It was the failure of regulators to protect consumers from market manipulation” that caused the utilities to overpay for power. I don’t think the court appreciated the extent to which the dysfunction in the market made it impossible for there to be just and reasonable contracts.”

Supreme Court deals blow to states on electricity [Los Angeles Times]

(Photo: Getty)

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  1. NumberFiveIsAlive says:

    How many megawatt hours are in a regular hour? I just don’t understand this system of measurement.

  2. kepler11 says:

    while these energy companies (and financial market manipulators) have taken improperly taken advantage of the situation, in the end it is the states/localities themselves which gave the companies the permission to operate and monopolize the market this way. Look at how in the CA energy crisis, Los Angeles stayed ok because it hadn’t sold off its responsibility. Energy is clearly a public good, and any state or other government thinking about selling off certain public resources to get a quick cash infusion should see that past history shows that they (or their taxpayers) will be paying for that mistake many times over, just later. Why would a private company buy an electric utility, airport, highway, etc. unless they knew it to be a good deal?

  3. grabba68 says:

    Let me give you the reader’s digest version. It should have been Megawatt per hour. Which means that every hour your city uses so much megawatts. In the city I live which is small (26,000) and not much industry, we have a base load of 33 mega watts per hour. So if you are paying 4 times then what you should be paying it starts to get crazy. Let me do the math for you on our town.
    Normal Price
    33 mega watts*105price per mega watt*24 hours in day*365 days in year = $30,353,400 yearly cost in electricty
    versus
    33*24*24*365= $6,937,920
    Nice size profit there if you can get it. Rember this is for a small city, if the load gets up to 150-250 mega watts you can see where they are getting upset.

  4. Coles_Law says:

    When you get your electric bill, your usage is described in kilowatt-hours. If you have a 100 watt light bulb and leave it on for 10 hours, you’ve just burned 1 kilowatt-hour of electricity. (0.1 kw*10h=1kWh) A megawatt hour is a thousand of these. An average household goes through a bit less than a megawatt-hour a month.

  5. Coles_Law says:

    Meant to be @NumberFiveIsAlive:

  6. jnews says:

    Just in the outside chance that you were asking a serious question and were not being flip (heh!), a megawatt hour is 1,000 kilowatt hours, which is how electricity is usually metered to us on our bills. A 100 watt light bulb uses 1 kWh every 10 hours (100 watts * 10 hours == 1,000 Wh == 1kWh), or about 72 kWh a month if you leave it on all the time.

    In northern Illinois, we pay ~$100 per megawatt hour ($0.10 per kWh), so I can certainly appreciate the horror of paying that if you’re used to $25, but $100 is certainly not like $10 a gallon gasoline or anything…

  7. Saydur says:

    This is one of the problems of permitting vital services to be at the whims of the free market. While it is not an impossible situation, the principle of supply and demand involves either drastic changes to common society or a disgruntled slavery to greatly inflated prices at times when demand greatly outpaces supply.

    To some extent, I find the general population to be guilty of uncontrolled consumption, unwilling or unable to scale back power usage sufficiently during a power supply crisis. On the other hand, profiteering during times of hardship is despicable as well. Certain amounts of power usage are absolutely vital (Think hospitals, food supply chain, emergency services), yet I suspect they were subjected to the same inflated prices as the short-sighted citizen who ran his air conditioner at 68 degrees and left his lights on throughout the house.

    I believe in the free market, but I also believe that core necessities to modern life such as baseline levels of electricity consumption should not be at the whim of profit. Shame on the utilities, shame on the power-hungry citizens, and shame on the state governments. Above all, shame on the NIMBY-minded advocates who stave off wind, hydroelectric, and nuclear power, because it will lower the value of their precious properties. A realistic housing market will do that just fine, thank you very much.

  8. zentex says:

    @NumberFiveIsAlive: mWh=1,000,000 hours

    which, if memory serves is a million watts used per hour, peak. Electric companies are all about the peaks (when it comes to commercial…they don’t care that you stayed under the radar all month and spiked for one hour…that one hour put you in another bracket.

  9. JohnMc says:

    I am with Kepler11, yet again the ‘regulators’ attempt to game the market. In so doing they get unintended consequences of their actions and screwed the consumer. Don’t blame the power companies — they did what the regulators wanted. Have folks in CA forgotten the 96-98 energy debacle with brown outs?

  10. zentex says:

    @zentex: i’m an idiot today nevermind me and my extra set of 0’s.

  11. B says:

    @jnews: Just so you understand, the $105 per Megawatt Hour is what the Utility company is paying, not what the customers are paying.

  12. mmstk101 says:

    i feel so much better now that they can steal from me legally (or with permission) rather than before, when they were stealing without permission.

    having the law on their side is what separates energy companies from good old pick-pockets.

  13. And that’s how Ah-nold got elected.

  14. Coles_Law says:

    @jnews: Whoa. Uncanny. Right down to the example.

  15. Mike8813 says:

    I was ecstatic when I finally escaped California utilities. I lived in Barstow, CA, paying nearly $300 per month to cool my 2 bedroom apartment.

    Paying through the nose is understandable if you can look out the window at beautiful beaches and beautiful women. But even if there WERE something to look at out there in the desert, you can’t see it when your windows are covered in tin foil to keep the heat out…

  16. Metacore says:

    I think they set an important precedent. No crime ever commited from now on will be the murderers fault, but the victim’s fault for not watching his ass.

    Genius! Now we can let all the murderers out of jail! No more overcrowding. We can keep all the people in there for pot too, or was that also the states fault for not regulating it? Well then let’s regulate it!

  17. Concerned_Citizen says:

    How does the price of electricity vary so much? Why isn’t the price regulated? If the price is normally 24 dollars a megawatt hour, there is nothing in the world that can justify 3,300 dollars for the same thing. Especially if you are fed by hydro electric or nuclear power. Those plants have no inputs to cause a price fluctuation.

  18. Lucky225 says:

    Well as much as I am for the Consumerist, I am also for a free & open market. It’s not up to the government to babysit the power companies and regulate the price, the market should do that. Just like people are switching to greener cars, if you have a green house you can afford the price of electricity or even eliminate it with solar power and generators.

  19. mikelotus says:

    Unless the contract explicitly states that a party engaging in illegal behavior invalidates the contract, it does not. And if the party did not engage in illegal behavior, oh well. Yes, they should prosecute Enron or anyone else that illegally manipulated the market. But stupid contracts by the government is not a reason enough to invalidate them.

  20. That God I live in a state whose Public Service Commission accepts bribes before allowing the energy company to raise the consumer rates.

    Think I am joking? How else did my natural gas supplier got away with a monster (approx) 30% price increase?

  21. ARP says:

    @Lucky225: The problem is that there is no free market. There is ONE company that owns the transmission lines and much of the infrastructure. So unless you’re prepared to put down 10X as much cable and infrastructure for each competitor that wants to supply power to your house (which is cost prohibitive and no power company would do it), there will always be a bottleneck. Your only options are:
    1) Regulate the power companies- obviously not working
    2) Nationalize the power companies- I’m actually OK with this. It’s no different than the police, fire department, etc. But I know some people still think the commies are coming to get them.
    3) Nationalize the transmission lines and allow power companies to compete with a level playing field- this is my preferred approach.

    @Saydur: You may not remember but during the energy crises and the rolling blackouts, there was a street in the OC, where half the street was lit and the other half was not because of a blackout. Four or five houses had all their house covered in Christmas lights. When the the reporter asked a few of them if maybe they should conserve to so there would be fewer blackouts, they looked at her like she was crazy and accused her of being anti-American and Anti-Christmas. It pretty much sums up our current attitude.

  22. @Metacore:

    I think they set an important precedent. No crime ever commited from now on will be the murderers fault, but the victim’s fault for not watching his ass.

    So you’re comparing a legal reprimand for a foolish lack of state and local fiscal responsibility to the legalization of murder? If you are on medication, I suggest you take it. If not, I suggest you speak with a medical professional ASAP. You can ignore this advice if you were simply attempting to win some sort of Wide-Eyed Idiotic Analogy contest or something, though.

  23. Coles_Law says:

    @ARP: The only problem I see with nationalizing transmission lines is maintenance. I don’t think local utilities would be so quick to repair downed lines if they didn’t own them. If the government took responsibility for repairs, that would be a large added expense.

  24. tedyc03 says:

    Well, what did you expect from the justice who wrote that drug dealers have Constitutional rights to own guns and child rapists have the right to victimize the child in the courtroom while they’re on the witness stand?

    This man should be impeached and then shot for treason.

  25. camman68 says:

    @Coles_Law: I was just looking at my current bill. It is for 1,220 KWH over 33 days for a total charge of $103.98.

    How does this compare to other areas?

  26. JennQPublic says:

    @Lucky225: The problem was the “market” was gaming the system to rack up incredible profits. Also, here in NorCal, I have to buy my power from PG&E. There is no “market.” Luckily, I like PG&E, but if I didn’t I still don’t have the option of taking my business elsewhere. I’m sure you have switched your house over to energy sources that are not dependent on electricity companies, but I can’t afford to cover my house in solar panels right now (even if we got enough sunshine here to make that effective, which I doubt) and switching to generators would mean burning more fossil fuels (although at least gas is still cheap. Wait, what?!?)

    @ARP: @Saydur: Amen!

  27. @camman68:

    Your rate = $.0852 per KWH.

    My rate = ~$0.09

  28. Coles_Law says:

    @camman68: there’s a lot of fees in the electric bill as well. Around here (eastern Kansas), electricity is about $0.05/kWh. The cost of electricity for someone living here with your usage would be $66.00/month. However, when you factor in the different fees, that can easily add $20-$30/ month.

  29. TheUncleBob says:

    @ARP: You forget the individual’s option to install solar panels or other sources of private power.

  30. Coles_Law says:

    @camman68: Hmm…here’s hoping this doesn’t double post. In Eastern Kansas, the electric rate is about $0.05/kWh. Someone living here with your usige would pay about $66/month for electricity usage. However, monthly fees can tack on $20-$30.

    To contrast, in CT, the rate is $0.13/kWh, making for a monthly bill of about $200.

  31. JennQPublic says:

    @TheUncleBob: Unfortunately, that’s a very pricey “option” right now. For most people it’s out of reach. You also have to figure in the cost of battery banks, if your aim is complete energy independence.

  32. TheUncleBob says:

    @JennQPublic: It’s a little unfair to complain about being “overcharged” for something when your alternative is more expensive, n’est-ce pas?

  33. @NumberFiveIsAlive: A watt is a measure of power – energy per unit time – denoted in SI units as J/s. An hour is a unit of time (duh), which contains 3600 s.

    So:
    1 Watt = 1 J/s
    1 kWh = 3600 kJ
    1 MWh = 1000 kWh

    To consume 1 kWh means you’ve consumed 3600 kJ of energy, regardless of how long it took you to do so.

    To simply answer your question, there’s exactly one hour in a megawatt hour.

  34. camman68 says:

    @Coles_Law: Thanks for the info. FWIW – I’m in Wichita.

  35. ideagirl says:

    @JohnMc: It wasn’t 96-98, it was 2001-2003. And our rates have continued to rise astronomically since then, so no, we haven’t forgotten. Personally, I have started going solar. My bill has gone up 50% in the last years. I’ve given them enough of my money.

  36. ideagirl says:

    @Concerned_Citizen: In CA, it isn’t the price that varies, it is the fees and surcharges. Look closely at that small print on the back of the bill. My actual cost of electricity last month was about $45, but the fees and surcharges were over $100. If we were paying the *actual* cost of the elecricity it would be palatable.

  37. ideagirl says:

    @Lucky225: Free and open markets don’t exist in this country any more, IMO.

  38. complexsearch says:

    Waaa.. Waa.. Waa.. Isn’t this what Enron did to scam customers with higher prices?

  39. mac-phisto says:

    @ARP: completely agree with your #3 & think that every type of public utility should operate the same way. it just makes sense that things like power lines, cable lines, telephone lines, cellphone towers (etc, etc) would be “owned & maintained” by the people, but i think the big push for private ownership in the 90’s was due to government fear of rising maintenance costs due to the age of the infrastructure.

    unfortunately, as consumers we get to pay the price in spades as companies seek to profit on both ends (charging both competitors & consumers for using the lines).

    @Coles_Law: there’s a lot of options here. you could have state workers maintain the lines (like some states have highway DOT workers maintain roadways). you could also contract out maintenance (just don’t do it like we do in connecticut, or you’re in for load$ of trouble) & mandate response times (similar to what many states require from private ambulance firms).

    i would even support private ownership of the transmission lines, but pass legislation that makes it illegal for one company (or holding company) to own both a generator & a supplier within a particular industry.

    laws like that used to be popular when our government supported competition over unfettered capitalism. not so much anymore.

  40. Coles_Law says:

    @mac-phisto: Good point. I hadn’t considered the DOT’s. That would make it much more feasible. Granted, if the lines go down in an ice or snow storm, the DOT will be lenty busy as it is. I was unaware of the existence of private ambulances as well, so I can see how a contractor could work too.

  41. mgomega says:

    @Saydur:

    Please explain to me how utilities are subject to the free market. With all the federal regulation and oversight, that just isn’t the case at all!

  42. mgomega says:

    Oh wow, no one has mentioned Enron yet…

    FIRST!!!!

  43. djreedps says:

    Nice. George W. Bush lets his buddies at Enron defraud power utilities on the west coast. California Governor Gray Davis asks Bush to do something. Bush does nothing. Davis is defeated in a recall election by Republican Arnold Schwarzenegger. Enron crashes and burns. Now the electric utilities who were screwed over by energy companies like Enron are still footing the bill. And the Supreme Court which has moved far to the right with Bush appointees Alito and Roberts, does nothing to correct this mess caused by Bush’s friends at Enron and Bush’s failure to regulate the industry. None of this has hurt Bush other than low approval ratings. Since George W. Bush cannot run for President again, low approval ratings are just academic.

    Only two people called Kenneth Lay, former head of Enron, now allegedly deceased, “Kenny Boy”: Lay’s wife and President George W. Bush.

  44. TMurphy says:

    @grabba68: “kilowatts per hour” might help people follow the math a bit, but people shouldn’t think a kilowatt is a consumable unit, it is an instantaneous value. TheWalkingEye explains how the units all work out, so if anyone doesn’t get what a kilowatt-hour means, scroll up a bit.

  45. bwcbwc says:

    @grabba68: Sorry, you’re wrong. A megawatt-hour is 1,000 kilowatt-hours (kWh). kWh are the billing unit on your electric bill. A Joule is the energy supplied by one Watt of power for one second, so a Joule is a Watt-second. A kiloWatt hour is 3.6 million Watt-seconds (1x1000x3600)= 3.6 MJ.

  46. BMRFILE says:

    This is why public utilities and petroleum need to be regulated and become government subsidiaries. Everyone pays the same across the board. No greedy shareholders to answer to. Fair market value no matter where in the country you’re in.

  47. dirk1965 says:

    oh boo hoo! That’s what happens when ‘tree huggers’ won’t let new power plants be built within their own state. You deserve to pay more!

  48. chrisjames says:

    @BMRFILE: Regulation, by definition, replaces fair market value. One can not exist with the other.

    Expropriation of the power grid sounds like an interesting proposal, especially with the dependence on electricity nowadays. It sounds interesting, until you think of what happens when a storm knocks the power out, and hundreds of thousands of angry people have to come to terms with government contracted repairmen, as well as realize that the publicly controlled utility doesn’t have the budget to get back on its feet. A simple light shower here is enough to set emergency crews back a few hours, and that’s just with slightly poorer road conditions. That’s people’s lives at stake, and the city can’t do anything about it. Yeah, let’s extend that impotence to the utilities we rely on. Besides emergencies, there’s plenty to worry about, like growth, service, market response, etc.

  49. booksy says:

    @tedyc03: Why don’t you get your facts straight before blathering your mouth on here? Justice Scalia never said that drug dealers had the right to carry firearms it was law abiding citizens that do, (that DC gun ban had the really nice affect that only the criminals had the guns).

    Further more with the child rapist case your confusing state Democratic congresmann James Fagan from MA. who promised to “Rip Apart” 6yo victims on the witness stand. Now the more liberal justices said on the supreme court that the states had no right to enforce the death penalty on a child rapist.

    The whole problem with most of the thinking on this site is the fact that people want the supreme court to decide cases based on what they “feel” the outcome should be and not what is based on law. If there is no law against what they did then petition you congress man or woman to make that law.