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Bush Puts FirstEnergy First – Consumers Last; White House Has Strong Ties to Troubled Utility

Aug. 20, 2003

Bush Puts FirstEnergy First – Consumers Last;
White House Has Strong Ties to Troubled Utility

Statement of Wenonah Hauter
Director, Public Citizen’s Critical Mass Energy Program

Electricity deregulation was the catalyst, but FirstEnergy apparently was the immediate culprit for the massive power blackout that shut down much of the Midwest and Northeast last week.

The Ohio-based energy conglomerate is receiving a lot of the blame for the power outage – but not from the Bush administration. FirstEnergy’s strong ties to the president may help explain why the company may be let off the hook for depriving millions of power during the blackout.

FirstEnergy executives rank among the Bush campaign’s top fundraisers. FirstEnergy President Anthony Alexander was a Bush Pioneer in 2000 – meaning he raised at least $100,000 – and then served on the Energy Department transition team. H. Peter Burg, the company’s CEO and chairman of the board, hosted an event in June that raised more than half a million dollars for Bush-Cheney ’04.

FirstEnergy at Fault

The immediate cause of the largest blackout in U.S. history is being traced to FirstEnergy, the Akron, Ohio, energy giant that is a product of the merger of seven utilities: Toledo Edison, Cleveland Electric, Ohio Edison, Pennsylvania Power, Pennsylvania Electric, Metropolitan Edison and Jersey Central Power & Light.

On Aug. 14, FirstEnergy’s 550-megawatt, coal-fired Eastlake power plant in Ohio stopped running at 2 p.m. In response, FirstEnergy began to pull roughly 20 percent of its load of electricity out of Michigan to meet its needs. This transfer overloaded several transmission lines, causing them to trip. Non-FirstEnergy plants in Ontario, Canada, began supplying energy to the underpowered Michigan market, which then let to an overload on those transmission lines. This movement of power in Canada deprived New York of power it had relied on, leading to the blackouts there.

Why Bush Won’t Blame FirstEnergy

Energy Secretary Spencer Abraham, discussing the administration’s plans for addressing the blackout, told CBS’s Face the Nation that consumers should be responsible for paying the $50 billion he claims is needed to upgrade the transmission system. Abraham added: “Ratepayers, obviously, will pay the bill because they’re the ones who benefit.”

Missing from the Bush administration’s solution is corporate America’s culpability. Since FirstEnergy started the problem, why shouldn’t the company be held responsible?

The reason FirstEnergy may be getting a free pass is because the company enjoys a close relationship with President Bush. On June 30, FirstEnergy CEO and Chairman of the Board H. Peter Burg hosted a fundraiser with Vice President Dick Cheney near the company’s headquarters, raising $600,000 for the Bush-Cheney re-election campaign. Held at the Hilton in Akron’s upscale Fairlawn neighborhood, attendees ponied up $1,000 to eat shrimp and hear Cheney speak. For an additional $1,000, they could get their picture taken with the vice president.

Anthony J. Alexander, FirstEnergy’s president and chief operating officer, is a 2000 Pioneer – meaning he raised at least $100,000 for the first Bush-Cheney campaign. He was also part of the Republican National Committee’s Team 100, raising $250,000 for the GOP in 2000. Alexander personally gave another $100,000 to fund Bush-Cheney inauguration festivities. When Bush took office, Alexander was included on the Energy Department’s transition team.

FirstEnergy’s PAC and its top executives are the sixth-largest contributors from the electric utility industry, giving more than $1 million to federal candidates in 2001-2002 alone, with 70 percent of the money going to Republicans. The company gave an additional $168,000 to Ohio state candidates over the same period (with three-quarters going to Republicans).

FirstEnergy wields enormous lobbying influence in Congress as well. The company spent nearly $3.8 million lobbying Congress and the Bush administration in 2001-2002 alone.

FirstEnergy’s Woes

Triggering the blackout is only the latest of FirstEnergy’s struggles. In early August, FirstEnergy announced it had to lower its profits from 2000-2002 and the first quarter of 2003. The financial restatement reduced earnings per share by nearly 11 percent in 2002 alone. In addition, the restatement will result in lower earnings through 2005. The accounting problems stem from permissive policies by FirstEnergy’s longtime accountant, Arthur Andersen. In response, a class action lawsuit has been filed by Milberg Weiss, accusing FirstEnergy of “accounting improprieties” that inflated its profits.

FirstEnergy also has been cited for negligent management of the company’s Davis-Besse nuclear reactor, located at the west end of Lake Erie, near Toledo, Ohio. The commercial power reactor remains shut down to this day, adding no power to the grid but remaining a constant risk to the surrounding region as another potential accident or terrorist target.

In 2001, the U.S. Nuclear Regulatory Commission inspected some of the nation’s 69 pressurized water reactors (PWRs), of which Davis-Besse is one. FirstEnergy successfully pushed the NRC for a postponement of inspections at Davis-Besse until mid-February 2002. That March, workers repairing a cracked mechanism at the top of the reactor discovered a football-sized cavity where boric acid had corroded through the reactor head. The corrosion was the result of the cracking and leaking that have been found in many of the PWR nuclear reactors (and was the reason why the NRC wanted to inspect all of the PWRs). Had the boric acid eaten through a final half-inch of metal, a loss of coolant would have occurred — creating the kind of incident that could lead to a meltdown of the reactor.

Since the discovery, the plant has remained shuttered, and FirstEnergy admitted in a report to the NRC that it had prioritized electricity “production over safety.” The NRC’s evaluation of FirstEnergy indicated a “lack of safety culture” at the company.


FirstEnergy, Deregulation and the Bush Administration

FirstEnergy may have been the spur of the power outage, but deregulation deserves the overall blame. The Bush administration has pursued a policy of energy deregulation long before the August blackout, and now that policy has come back to haunt us.

Bush’s energy deregulation is making America vulnerable for two reasons. First, the United States’ transmission system was designed to accommodate local electricity markets, not the large, freewheeling trading of electricity and movement of power over long distances under deregulation. Sending power over a much wider area strains a transmission system designed to serve local utilities.

Second, deregulation at the state level means utilities are no longer required to reinvest ratepayer money back into the transmission system, as deregulation replaced that orderly planning with reliance on “the market.” But the market has been unwilling to make the necessary investments in transmission. In particular, the market has not functioned properly since loopholes were punched in the Public Utility Holding Company Act (PUHCA) over the past decade.

PUHCA, slated for full repeal by the Republicans in both the House and Senate energy bills, is the last federal regulation that requires giant energy companies to disclose crucial financial details and limits the types of non-electricity investments they may make. If PUHCA is repealed, a wave of mergers will likely result, leaving a handful of companies (like Southern Co., ExxonMobil and FirstEnergy) in control of our electricity – with no effective regulators looking over their shoulders.

In the case of the August blackouts, the deregulated wholesale markets of the Midwest and Northeast – typically cited as models for national deregulation by the Federal Energy Regulatory Commission – failed in their ability to provide reliable and affordable power. As a result, wholesale prices remain higher than under regulation, and nearly 96 percent of the 40 million residential consumers in the remaining 15 deregulated states lack access to competitive electricity suppliers.

This is the world of energy the Bush administration and its financial supporters envisioned. Of course, no one wanted a regional blackout. But no one was there to prevent it, either.