Bad Policy, Big Bucks

How Pataki's Disastrous Energy Plan Fattened His Friends and Campaign Coffers

Every Gubernatorial poll makes the economy the top issue, every economist knows that one way a governor impacts on jobs is by influencing the price and reliability of power, and every analyst of George Pataki's energy policy, from the right and left, has reached the same sad conclusion: It's a disaster. Yet no one's talking about it.

The governor's deregulation scheme went into effect in late 1999, and energy prices in New York City and Rockland and Orange counties spiked 43 percent by the summer of 2000—one of the coolest in history, when rates were dropping in neighboring states. To stabilize prices and prevent outages in 2001, the State Power Authority had to rush to the rescue, spending $500 million to instantly add 400 megawatts to the city's generating capacity, a shocking admission of the almost instant failure of Pataki's "let-the-markets-rule" energy ideology.

The most recent statistics from the Energy Information Administration indicate that statewide costs are 70 percent higher than the national average, behind only Hawaii, and far worse than the 50 percent mark they hit when Pataki was elected in 1994. Billed also as a spur to competition, deregulation has instead led to little consumer choice, with even the number of investor-owned utilities dropping from seven to four.

illustration: Patrick Arrasmith

While the governor's media allies are quiet now, a Daily News editorial blasted the plan just two years ago as "dopey," accusing it of "electrocuting the state's economy." In March 2001, the Post's "Electric Shock Treatment" editorial pointed out that when "the state began implementing a deregulation plan that required utilities to sell off their existing plants to independent power producers," Pataki "crowed it would lead to more competition and lower prices, but the opposite proved true."

Assemblyman Paul Tonko, the upstate Democrat who was once an engineer at the Public Service Commission and who now chairs the energy committee, issued a report last week that sounded an alarm, though the Albany Times Union and The Syracuse Post-Standard were the only papers to cover it. Revealing that a third of the state's generating capacity is now owned by junk-bond companies, several "in danger of bankruptcy," Tonko contended that Pataki's "radical deregulation policies, which encouraged complete divestiture, have left New Yorkers at unique peril," compromising "the reliability of the electric system." While the capital crisis is national, said Tonko, it has, when combined with Pataki deregulation, put "consumers at greater risk than their counterparts in other states."

Warning that "the financial community is running away" from the merchant generating companies that now control much of New York's power "on a scale not seen since the Great Depression," Tonko fears that plants will close or won't be built, noting the recent suspension of construction on a plant in Athens. With even the New York Independent System Operator—a new entity created by state regulators to oversee electric markets—saying that the system is in "persistent crisis," Tonko concludes that New York consumers may well wind up paying more "for the privilege of their lights going out."

That double whammy is "New York's Perfect Storm," the title of Tonko's ignored report, which faults the governor for rushing deregulation through by administrative fiat, without any legislative involvement, "before workable wholesale and retail markets were in place." Of course, the advantage of doing a deal of multi-billion-dollar proportions alone is that there's only one place to go for those who want to buy influence in the process. The one commodity this scheme did generate was lobbying and campaign cash, energizing the governor's gang—from his top political advisers, Kieran Mahoney and ex-senator Alfonse D'Amato, to his former law partner Bill Plunkett, and even to the Public Service Commission chair who crafted it, John O'Mara.

This is the story of how bad policy earned big bucks—including at least $376,505 for the re-election campaign of the governor who enacted it, collected from the disgorging utilities and the acquisitive new merchant generators. With New York's new generators—like Mirant, Dynergy, Reliant, AES, Entergy, Orion, Sithe, Calpine, Constellation, PSEG, and Pacific Gas & Electric National Energy Group, the California utility at the core of its crisis—contributing $177,750 to Friends of Pataki and the state GOP, the lobbying association they put together, the Independent Power Producers PAC, kicked in another $12,250. One producer who was vice chair of the PAC, Michael Tucker of Mercer Companies, donated a remarkable $19,880, adding another $23,100 to the assembly and senate Republican committees, and selling off three of his plants after deregulation.

And the utilities that divested their plants at exuberant prices also joined the Pataki sweepstakes, with upstate Energy East donating $10,950 through its Energy Action Fund and its directors, while National Grid and Niagara Mohawk (which merged) added $71,575, Rochester Gas & Electric $6900, and Con Ed another $16,750. Another major beneficiary of Pataki energy policies, Keyspan, which manages the Long Island network, has kicked in $59,200.

This tally doesn't include donations from the Albany lobbyists for the industry who are tied to the governor—like Davidoff & Malito, Bolton St. John's (whose partners include Armand D'Amato, the senator's brother), and O'Mara, who is now an attorney for at least one of the utilities he deregulated, Niagara Mohawk (NiMo). In addition to directly representing NiMo as a registered lobbyist, O'Mara has a consulting agreement with a Syracuse law firm, Hiscock & Barclay, that lists NiMo as a client. The firm has a state contract to handle Indian land claims, and O'Mara is paid to represent the governor in any casino negotiations. Plunkett, whose Westchester law firm once included Pataki as a partner, wound up representing Entergy Nuclear, which bought two of the state's nuclear plants at 70 percent of book value.

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