WASHINGTON – The new law of American governance is: Failure should be handsomely rewarded

Those in intelligence who failed to sound the alarm before Sept. 11 were not punished for their failure but, rather, were rewarded with draconian authority that they had long coveted. Those who told President Bush that Iraq was bristling with weapons of mass destruction are happily at their desks working toward retirement.

Now the electric utility industry, after a catastrophic failure, will get rewards beyond its wildest dreams. As few members of Congress opposed the Patriot Act, or were disapproving of the carte blanche for war handed to the president, few will oppose a long shopping list that is coming from the electric utilities. After all, who wants to be said to be in favor of blackouts?

Everything that is said about the rickety condition of the electric grid is true. But it is not what caused the debilitating blackout in Northeastern United States and Canada last week. That was not overload, but a lack of oversight. It was poor load management.

But as heads have not rolled in the intelligence community or at the Pentagon, heads will not roll in the electric utility industry.

Rewards will be handed out. The utilities will demand and get tough rights of eminent domain; relief from environmental standards, such as the contentious New Source Review procedures; and utilities will demand and get a guaranteed right of return on new transmission lines and on the upgrading of the old ones.

Over the years, I have watched the relentless erosion of the sense of civic responsibility, which was once the hallmark of the electric utility industry. From the passage of the Public Utilities Holding Company Act of 1935, until the scattershot deregulation of the 1990s, utilities set the standard for corporate responsibility. They attracted management with a highly developed sense of the public good and of the moral obligation of monopoly.

After the blackouts of 1965 and 1977, they were humiliated. By contrast, their immediate reaction after this latest disaster has been to blame everyone who can be blamed – from the Canadians to the environmentalists – and not a breath of mea culpa.

The compact that underwrote years of efficient electric service frayed quickly with deregulation, even in utilities that were not deregulated. The performance of the companies’ stock became more important than the performance of their systems. Deregulation, not inherently a bad idea, turned into a gold rush for a new breed of upwardly mobile executives, investment bankers, consultants and traders.

A once noble industry traded away its decency and good reputation in the hope of large stock gains. Those who were not sufficiently inspired by Enron, looked over their shoulders at the telecommunications industry and rolled the dice.

As the industry sailed into uncharted waters, it looked overseas for guidance. This came from the United Kingdom where Margaret Thatcher privatized the state utilities and – get this – New Zealand.

I remember sitting in a meeting of the Aspen Institute when a persuasive advocate of deregulation from that small country was urging American utilities – many of whom have more customers than New Zealand has people – to sign on and follow the New Zealand example.

The Bush administration needs to address the transmission issue but with caution. Consumers’ best hope for not being stuck with a bill for concessions to the electric utility industry lies with the states and their determination not to trade away states’ rights. Unfortunately, to date state regulators have been more interested in protecting their fiefdoms than they have been in solving a regional problem.

Pat Wood, the embattled chairman of the Federal Energy Regulatory Commission, a sometime Texas regulator, recognizes the need for regional solutions and has been working diligently to bring them about, while being sniped at by the states and many utilities, and stymied by Congress. Wood should be allowed to finish his work and to present a comprehensive plan that can be incorporated into national legislation.

However, as the utilities smell the possibility of reduced regulation, federal guarantees and abrogated environmental laws, Wood’s task will be harder. Failure demands its payout.

Llewellyn King is chairman and CEO of the King Publishing Co. (www.kingpublishing.com), publishers of White House Weekly and Energy Daily. Readers may write to him at King Publishing, 1325 G Street NW, Suite 1003,Washington, DC 20005.


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