Remember freezing February at election time

By Tom "Smitty" Smith for the Dallas Morning News 

Opinion piece urges consumers to hold officials accountable for failure to require power plant weatherization.

Read Smitty's op-ed.

ERCOT's Board Gave Heavily to House Members

As the Texas House investigates the Electric Reliability Council of Texas (ERCOT), Lobby Watch finds that powerful energy interests seated on ERCOT’s board gave heavily to House members. Is a House that receives $700,000 in ERCOT-related mortgage payments more forgiving of catastrophic blackouts?

 

Read the new Lobby Watch.

The Old Green Deal: Oil & Gas Industry Abbott's Top Political Donor

Following Gov. Abbott's attempts to blame recent catastrophic power failures on renewable energy, TPJ finds that the oil and gas industry is Abbott's No. 1 contributor. It supplied 19 percent of the $87.3 million that Abbott raised since January 2017. Electric utility interests contributed more than $1 million more, with contributors who specialize in renewable power supplying just a trickle of that money.

Track this fundraising grid at the new Lobby Watch.

Lobby Watch: Fracking Industry Gave Lawmakers $5.5 Million

The energy industry is the state's most generous to political candidates. No wonder lawmakers are flocking around bills to block local government restrictions on fracking operations. One pro-fracking bill counts more than a third of the House as its sponsors! 

Sen. Troy Fraser leads his chamber in his dependency on fossil-fuel funds. Fraser authored a leading fracking-protection bill, as well as other key bills servicing oil-and-gas interests. 

Using hydraulic fracturing and horizontal drilling, Lobby Watch tracks $5.5 million in recent legislative hydrocarbon contributions from wellhead to war chest.

'Governor Handout' Trashes the Bailout

Texas Governor Rick Perry has sown confusion with recent contradictory statements about the $700 billion Wall Street bailout. His populist aversion to "using taxpayer dollars to bail out corporate America" is surprising--given the hundreds of millions of tax dollars that his administration has doled out to private businesses that include subprime mortgage giants.


Read the report

SA Express-News Special Report: Peddling Influence

Telephone giant SBC spent as much as $7 million last year hiring 112 Texas lobbyists — and ended up with a new law that allowed it to charge what it wants for no-frills phone options, and made it easier to offer television service. The value of lobby contracts has risen virtually every year, soaring last year to anywhere from $146 million to $304 million — lobbyists are required to report amounts only in ranges — according to Texans for Public Justice, a nonpartisan group that tracks money in Texas politics. That's 77 percent higher than 1995 figures. Read the article at the San Antonio Express-News

Lobbyists' money talks — softly, but it's heard

04/10/2008
San Antonio Express-News

AUSTIN — Telephone giant SBC spent as much as $7 million last year hiring 112 Texas lobbyists — and ended up with a new law that allowed it to charge what it wants for no-frills phone options, and made it easier to offer television service.

Insurance interests have contributed $414,095 in the past five years to the campaigns of the 18 legislative committee members who oversee insurance laws — and wound up with a homeowners' bill in 2003 widely seen as favoring the industry.

No one has proof that SBC's well-funded campaign to overhaul the state's telecommunications law, or the funneling of campaign contributions by insurance interests, led to victory at the Capitol.

But even the state's best-paid lobbyist says it would be naive to suggest that big bucks aren't effective.

Superlobbyist Russell "Rusty" Kelley knows special interest money often prevails. He represents those interests — and sometimes finds himself pitted against consumers.

"There isn't a level playing field," he said.

Last year, he earned between $4.4 million and $5.5 million representing 63 clients — and in turn donated $143,000 to legislators and state officials. He knows that to remain influential, he has to spend generously on candidates who later will, Kelley hopes, support his interests.

Kelley says he's not aware of any quid pro quo connecting money with legislation. Rather, the influence of the lobby is more subtle.

"If you're asking me if I'd give money if I didn't do what I do, the answer is obviously no," the 58-year-old Kelley said.

Welcome to the world of lobbying, where in Texas anywhere from 1,300 to 1,700 special interest representatives try to woo, sway and educate lawmakers into supporting their clients' pet causes.

For four days beginning today, the San Antonio Express-News will focus on the Texas lobby, tracking the money it spends and the influence it yields.

A review of thousands of state records shows legislation often is introduced by powerful lawmakers after lobbyists spend lavishly on their campaigns and entertain them.

Some of the most influential lobbyists once were legislators themselves, and often gain direct access to former colleagues right after leaving office.

Lobbyists work behind the scenes and they don't talk publicly about what they do. "It'd be the kiss of death," one lobbyist said over pizza at a trendy restaurant in downtown Austin.

As most states and the federal government consider various reforms to tighten lobbying restrictions, the lobby in Texas has grown increasingly powerful.

The value of lobby contracts has risen virtually every year, soaring last year to anywhere from $146 million to $304 million — lobbyists are required to report amounts only in ranges — according to Texans for Public Justice, a nonpartisan group that tracks money in Texas politics. That's 77 percent higher than 1995 figures.

Spending on food, entertainment and gifts has skyrocketed 179 percent over the same period, to $2.87 million last year from $1.03 million in 1995. Last year's figure amounts to about $15,900 worth of perks for each of the 181 lawmakers — more than double their $7,200-a-year salary.

Unlike the federal government and 22 other states, Texas has no cooling-off period barring lawmakers or their top aides from lobbying after they leave office, and has no cap on the money lobbyists or their backers can dole out in contributions, meals or entertainment.

The potential for abuse is enormous, and the state agency in charge of monitoring lobbyists has received 1,500 sworn complaints since its founding in 1992. However, the Texas Ethics Commission has never conducted a complete audit or subpoenaed a single document, or subpoenaed and met with a witness in person.

Since 1992, the commission has initiated only one sworn complaint, has conducted one formal hearing and has not forwarded a single case to a law enforcement agency for criminal prosecution, the commission acknowledged.

Jack Abramoff may have made Washington lobbying a bad word, but that hasn't put a dent in the lobby's influence in Texas.

Rookie lobbyist Scott Gilmore has spent $4,000 on meals since early 2005 for Texas lawmakers, their staff and others connected to his clients' largely prison-related interests. Sometimes he bought lunch for entire committees. Other meals were more intimate.

By the end of the session in May, four lawmakers whose names appeared on his itemized spending reports carried bills that would benefit his clients. At least one proposal, opening county jails to private companies selling commissary goods, became law.

Gilmore says the meals had nothing to do with what he described as a good first session.

"I can't imagine any legislator who's willing to be bought with a steak. The notion is absurd," he said.

Robert Stern, president of the nonpartisan Center for Governmental Studies in California, said a steak — or a campaign contribution — might not "buy" lawmakers, but it's almost certain to buy access by buying their time. "And time is worth a lot of money," Stern said.

Though deals probably are rare, Stern said lobbyists and their clients spend money on politicians because over time it's proved to be a good investment.

"It's hard to say, 'We've done a scientific experiment in the lab and here's scientific evidence of what money buys.' You can't prove it, but you can say that smart people don't waste their money."

Money dominates at the Capitol

Critics say the lobby, and the special interest money behind it, exerts a subtle but unmistakable influence on state lawmakers, bankrolling campaigns and in some cases subsidizing lavish lifestyles.

The line between lobbying and influence peddling can be narrow, attracting the interest of prosecutors when gifts and campaign contributions result in explicit agreements for votes or support of legislation.

Former associates of outgoing Rep. Tom DeLay recently pleaded guilty to a variety of influence peddling charges that have implicated several members of Congress in a federal investigation into the Abramoff bribery scandal.

The millions of dollars that lobbyists and their special interest clients pour into political campaigns and the legislative arena help give them access. Elected officials take their calls, invite them into their offices, and typically respond quicker than they do to ordinary citizens who are not financially invested or connected.

"The worst thing is that people are cynical," said San Antonian Kevin Colson, a dairy products exporter who specializes in Mexican trade.

"Money is dominating things today, and people are letting it happen," Colson said. "We have been sitting back on our laurels and forgot that the democratic process means that people participate. I think people are realizing it and starting to push back against corrupt, big money."

But for now, "small people really don't play in this game," said Craig McDonald, of Texans for Public Justice. He said most people seem to understand that "government is by and for the special interests and their lobbyists."

Lobbyists and their clients say they have every right to try to influence government with whatever resources they can muster.

"One of the things we won't do as an industry is apologize for petitioning our government," said Rick Gentry, executive director of the Insurance Council of Texas, a trade association that represents 540 insurance companies. "We hire a lot of people, we pay a lot of taxes and we invest heavily in our state and yes, we do petition our government and I don't find anything wrong with that."

Scandal can breed reform

Texas lobbyists number anywhere from 1,300 when the Legislature isn't in session to 1,700 when it is. At peak levels, the number amounts to more than nine lobbyists per state lawmaker. Each day, this group of men and women try to persuade politicians to push their clients' agendas, from cutting business taxes to deregulating utility rates.

Most work in-house for a single interest, like a corporation or a trade association. A smaller number of hired guns hang a shingle outside an office and work for whoever hires them. Some work alone, others in informal or formal partnerships. Some of the most successful are former lawmakers or former aides to lawmakers who cycle in and out of government.

Former state Rep. Mike Toomey briefly left his lucrative lobbying business in 2002 to become Gov. Rick Perry's chief of staff for one regular and two special legislative sessions.

Toomey wielded enormous influence. Some say he had too much.

"I can't tell you how often I was frustrated standing on the House floor and watching legislators walking out and come back in and say, 'Well, you know Toomey called me and I can't.' It all comes from the top down," former Democratic state Rep. Glenn Maxey of Austin said.

At least 19 lobbyists took in over $1 million last year.

The top earner appears to be Kelley, onetime aide to former House Speaker Billy Clayton. While he earned at least $4.4 million, it is impossible to discern the exact amount because Texas requires lobbyists to disclose their earnings only in ranges. Contracts over $200,000 are reported with an imprecise "$200,000 or more."

About 30 of the 1,700 lobbyists work for consumer or environmental groups, according to Texans for Public Justice. The rest represent business interests.

Schmoozers by trade, they're good for more than just a free meal or basketball game. They're experts on their issues and lawmakers often tap them for a briefing or for help drafting a bill or an amendment.

"Because we're citizen legislators and because there's no way we can be experts on every issue, we depend on people you can trust, which a lot of times are lobbyists who give you very good information," said Sen. Troy Fraser, a Republican from Horseshoe Bay who chairs the Business and Commerce Committee.

They often have been a source of scandal.

In the 1980s, Texas newspapers carried accounts of House Speaker Gib Lewis, on a trip to Mexico, living it up at an $800-a-night hotel paid for by the San Antonio law firm of Heard, Goggan, Blair & Williams. Four lawmakers spent four days on the ski slopes of Taos, N.M. — courtesy of the lobby.

And chicken magnate Lonnie "Bo" Pilgrim, with an interest in workers' compensation reform, handed out $10,000 checks in 1989 to key state senators on the eve of an important vote.

Such reports created an uproar and, in 1991, legislators were pressured into adopting a series of reforms. Among the most far reaching was the creation of an Ethics Commission, which voters passed as a constitutional amendment, to oversee the lobby; and disclosure laws requiring lawmakers to report gifts, meals and entertainment above a certain amount.

Almost overnight, the new laws put a halt to the excesses that had become synonymous with the Texas lobby. Lawmakers now are prohibited from such common practices as walking into a club and putting their drinks on a lobbyist's tab without the lobbyist being present.

But the lobby's influence didn't diminish. Lobbyists went from currying favors with meals and trips to currying favors with campaign money, watchdog groups say and spending reports suggest.

That's been the trend seen around the country, said Stern, of the Center for Governmental Studies.

"As you restrict what a lobbyist can do with gifts and travel, you make campaign contributions more important," he said.

Lobbyists and their firms gave upward of $4.3 million to the campaigns of House and Senate candidates in 2004, compared with the $1.5 million they spent on food, entertainment and gifts for lawmakers, their staff or invited guests.

"If you think lawmakers are being bought with dinners, you're missing the big story," said Andrew Wheat, research director for Texans for Public Justice, noting that far more influence stems from campaign contributions.

Influx of special interest money

It is the unlimited influx of special interest money in political campaigns where watchdog groups focus their ire.

In the 2002 election, for instance, more than $16 million in statewide political contributions flowed from a single ZIP code — downtown Austin, 78701, where lobbyists are concentrated — nearly four times the amount sent from any other ZIP code, according to Texans for Public Justice.

The impact of lobby money trying to influence election outcomes concerns some of the veteran lobbyists.

Campaign money matters more now than it has in the past, says one lobbyist, who didn't want to be identified for fear that speaking out would cause retribution against his clients.

"The system has changed in the last few years. I don't want to say that issues always mattered, but they matter less now than ever before because what happened is that a small group of clients with a tremendous amount of money control the system," the lobbyist said. "What you get is a small group of lobbyists controlling the money.

"I've had more members of the Legislature in the last few years tell me that they're for something and then not vote for it. In the past, they felt bad about it. Now, they say, 'That's where my money comes from,'" the lobbyist said. "What we're starting to see in the Legislature now is more concern about re-election and money and less concern about what's right for Texas."

The most effective groups are ones with enough money to play the game at both ends: trying to elect friendly politicians and also lobbying all members, said Scott McCown, a retired state judge who is now executive director of the Center for Public Policy Priorities, an Austin-based nonprofit organization that advocates for poor and middle-income Texans.

"If I've got money to change an election, it's going to be a lot easier on me to change your mind. If I'm only trying to change your mind on the basis of your intellect and patriotism, it's much harder," McCown said.

Lobby money buys more than just campaign mailers.

It funds — or is perceived to fund — the good life.

Sen. Frank Madla's primary defeat in March after more than 30 years representing San Antonio in the Legislature widely was seen as stemming from unflattering news reports that he took $1.7 million from his campaign funds over the past three years and used more than $19,000 of it on liquor; $7,000 on bottled water; and nearly $83,000 on an apartment in Austin.

Texas law bars politicians from using campaign funds for personal use, but it doesn't define personal use and it doesn't set caps. An apartment in Austin can be useful for a candidate with official business in the capital, but it can also be used to subsidize that candidate's lifestyle.

Lewis, of Campaigns for People, said the current system leaves Texas government agencies vulnerable to influence peddling.

He advocates putting limits on wining and dining and supports reforms ensuring that lawmakers get enough taxpayer-funded resources for their offices that they don't need — and are barred from taking — lobby money.

"They don't appear to be independent actors," Lewis said. "It would be like you and me driving a lobbyist's car and then saying we're independent. It's crazy."

Targeting state's insurance crisis

In the early years of this decade, Texas had an insurance crisis on its hands.

For a series of reasons, including a mold scare and largely unregulated prices, Texas homeowners saw insurance premiums skyrocket to more than double the national average. The price increases weren't enough, however, to reverse the huge losses insurance companies were reporting.

"State Farm was losing $50 million a month" by 2002, said Beaman Floyd, a longtime insurance lobbyist. "The marketplace was about to collapse."

In 2002, Gov. Rick Perry declared the situation a state emergency and assured homeowners they would get relief in the 2003 session.

Consumer advocates say it was a mostly empty promise.

Senate Bill 14, which passed on the very last day of the regular session, eliminated a loophole companies had used to skirt price regulation.

But it did little to decrease rates. Moreover, it eliminated the state's standardized comprehensive coverage policy, allowing companies instead to provide a complex array of coverage options. And it allowed companies to continue to use credit scoring — which critics say discriminates against the poor — in determining who gets covered and how much those who are approved pay.

In the years since, premiums have fallen about 5 percent — they remain more than double the national average — while losses have dropped 85 percent, says Alex Winslow of Texas Watch, a consumer advocacy group that opposed Senate Bill 14.

Consumer advocates have no evidence that insurance money directed at the lawmakers who write insurance legislation resulted in pro-industry legislation.

But insurance interests did give generously.

Between 2000 and 2005, insurance companies contributed more than $414,095 to the campaigns of the 18 committee members who oversee insurance laws, according to an Express-News analysis. In 2002, the year leading up to Senate Bill 14's passage, the total figure to committee members was $108,367.

Sen. Leticia Van De Putte, D-San Antonio, who sat on the committee and has received $45,528 from insurance interests over the past five years, acknowledged that the money spent by special interests "is getting obscene and scary."

She said she didn't know if Senate Bill 14 would have passed had the insurance industry not spent the money it did.

And though she ultimately voted for Senate Bill 14, despite reservations, she said it wasn't because of the contributions she received. She had offered a competing, unsuccessful, bill that was friendlier to homeowners. She felt SB 14 offered important compromises — and was the best Texans could hope for at the time.

"I'm going to do what's best for my constituents regardless of the contributions," Van De Putte said.

Rep. Larry Taylor, R-Friendswood, a longtime insurance agent himself, who was a leading proponent of the 2003 bill and who, since 2002, received $8,500 from the largest insurance interests, said: "I don't care who I get $1,000 from, if the bill's not right, I'm not going to vote for it."

The telecom bill comes calling

Such sentiments are echoed by lawmakers whether the issue is insurance rates or phone rates or prison contracts. Nearly everyone acknowledges the influence of big money in politics, and some say it troubles them. But all deny money ever has swayed their individual votes.

Last year, San Antonio's SBC (now AT&T) launched a massive campaign to overhaul the state's telecommunication laws.

It spent between $3.4 million and $7 million on contracts with 112 lobbyists. It gave $48,000 in political contributions last year to the 16 committee members who shape telecom legislation, according to an Express-News analysis of state records.

It wasn't the first big influx of SBC money into the political arena. Since 2000, the company has donated $149,000 to the coffers of committee members.

What did SBC go home with in 2005?

Senate Bill 5 died in the regular session but passed by an overwhelming vote in the second special session. Besides deregulating rates, it also enabled the telephone giant to negotiate a single statewide franchise in its quest to provide video service, rather than having to negotiate with individual localities as cable companies had been forced to do.

Consumer groups deplored Senate Bill 5.

"Consumers will have fewer choices and they will pay higher prices," said Ed Mierzwinski, consumer advocate for Texas Public Interest Research Group.

He said a campaign that cost SBC millions could now yield it "billions."

"Money talks and the phone companies know that," Mierzwinski said.

AT&T Texas President Jim Epperson said that his company does spend a considerable amount of money to lobby, but added that no amount of lobbying will persuade legislators to pass laws that don't serve their constituents. The company's goal, he added, is to educate lawmakers so that they explain the complex issues surrounding its industry.

"I wouldn't sell lawmakers short," Epperson said. "I wouldn't say lawmakers get their agenda from the lobby."

Fraser, the Republican chair of the Senate Business and Commerce Committee who's received about $26,7000 from large telecommunications interests since 2000, dismissed suggestions that SBC money translated into favorable legislation.

"The bill would have passed as it passed if they had spent zero. All their money had zero impact. And here's the reason: Nothing moves through my committee unless I agree with it," Fraser said.

Rep. Phil King, R-Weatherford, sponsored SB 5 and was the top recipient of large telecom interests' largess over five years, taking in more than $33,000 in campaign contributions. King did not return calls for comment.

Sen. Van De Putte received $29,000 over five years from large telecom companies, claiming the second highest amount of the committee members. She voted in favor of the telecom bill.

She bristled at even the hint that money might have swayed, or be perceived to sway, her vote.

"If I could be bought, I wouldn't be in the Legislature. My family loses $50,000 to $60,000 each session," she said of the earnings she forfeits from not being able to work as a pharmacist.

She said Senate Bill 5 wasn't a perfect bill and she fretted that local phone rates might rise slightly. But she ultimately supported it because she believed it would create jobs and would open the market to more competition. "It's a platform for the future," she said.

Last month, AT&T announced it was raising phone rates for about a third of its customers by an average of $2 a month.

Government-lobby lines blurred

Sometimes, lobbyists can have such insider status that the line between lobbyist and government gets blurred.

Such is the case of Bill Miller, who in 1998 formed a hugely successful lobbying firm with Neal "Buddy" Jones called Hillco Partners.

Four years after its formation, while still working at Hillco, Miller was tapped by Tom Craddick, who was set to become House speaker, to join his transition team.

While lobbyists had for years enjoyed close ties to top government officials, Miller became in essence a government insider for a few months, while keeping his day job representing big money clients.

While the arrangement deeply disturbed watchdog groups, there is no evidence to suggest either party engaged in anything unlawful.

Miller says he did nothing more than serve as Craddick's spokesman, something he has done on and off since the two became friends in the mid-1990s.

Craddick spokeswoman Alexis DeLee said Miller's role was limited to media-related matters, and added that there was no conflict of interest since the two had "been friends for a very long time."

Miller maintains a cozy relationship with the House speaker. In 2004, he helped arrange a private visit with the pope for Craddick, who is a devout Catholic, and his family. Miller went along. They all paid their own way.

"That was the biggest play of any lobbyist's career that I know of," said Tom "Smitty" Smith, who heads the Texas chapter of Public Citizen, a consumer advocacy group.

Hillco commands top dollar from clients, who last year paid as much as $7 million for its lobbying services. That put Hillco third among all lobby firms in the value of contracts.

It has also gotten into the business of giving money, much of it coming from other people.

It established a political action committee, Hillco PAC, which has raised almost $1.4 million for candidates since 2000. Since 2002, it's given $136,000 to Gov. Perry and $110,000 to Lt. Gov. David Dewhurst. Speaker Craddick has collected $26,000 from Hillco since 2000.

One former lobbyist complained that the rise of groups like Hillco have shut out other lobbyists, creating in effect a cartel. "It's a fixed game," he said.

McDonald, of Texans for Public Justice, sees a different problem.

"When contributions come from the Realtors' association, you know the source of the money," McDonald. "When it comes from Hillco, it really muddles the source."

Weak oversight from commission

The 35 or so employees in charge of monitoring the Texas lobby and, more generally, the state's elections system work on the 10th floor of a large granite building overlooking the Capitol.

The Texas Ethics Commission was set up by constitutional amendment in 1992 to regulate elections and to protect the public's right "to apply to their government for the redress of grievances."

The agency is in charge of collecting and maintaining campaign records; leveling fines for late filings: taking questions from the public; and investigating complaints of code violations.

In the years since its establishment, the commission has never completed a thorough audit, or subpoenaed a document and even met in person with a witness. Nor has it ever initiated an investigation, the commission acknowledged in response to an open records request.

"There's no one watching," said Fred Lewis, director of the watchdog group Campaigns for People.

The commission's executive director, David Reisman, refused to explain why the agency has not been more aggressive, saying through a spokesman that the commission did not grant formal interviews.

Watchdog groups say the problem is that the agency is beholden to lawmakers whom it — at least in theory — polices.

"You can't expect it to be efficient," said McDonald, of Texans for Public Justice. "It's a good library but we shouldn't expect it to be a cop."

Two former commissioners and a 2002 review by the Sunset Commission all concluded that the agency had been paralyzed by draconian confidentiality laws, which have not applied to other state agencies and which until at least 2002 barred employees from even discussing complaints with third parties or contacting law enforcement agencies.

Changes to the law in 2003 have apparently done little to change the agency's culture.

"They cannot go as far as they need to, there's no question about it," said Ralph Wayne, the commission's immediate past chair who stepped down last fall. He said the confidentiality statute needed to provide still more protections to staff, who, if convicted of violating the confidentiality statute, face fines of up to $14,000 and as much as a year in jail.

Cleaning up excesses

Top-earning lobbyist Rusty Kelley said he sometimes finds it painful to pick up the newspaper.

Kelley grew up in a small West Texas town and bears none of Jack Abramoff's flamboyance. He credits his success to luck, and help from others.

Kelley understands the public is turned off by the commingling of special interest money and politics.

He said he'd support strict limits on campaign donations, but adds that for the time being, "It would be naive to suggest that I could not participate in these re-election efforts."

With surprising candor, Kelley said watchdog groups have a point when they talk about a political system dominated by big money interests. Though he believes his work normally pits big business against big business, sometimes he goes up against community interests, and knows they probably won't stand a chance.

He doesn't offer any solutions except to say he may not remain in the business forever.

Longtime lobbyist Jack Gullahorn has done more than most to clean up the excesses that surround his profession.

Five years ago, he formed an advocacy group for lobbyists known as the Professional Advocacy Association of Texas.

He hopes to improve the profession's standing with the public. The only way that will happen, he said, "is if we're perceived to be acting ethically."

He's signed up about 100 individual lobbyists, including many of the top players, and several corporations.

Gullahorn educates them on the minutiae of state lobby laws. Every week or so, he includes a new Compliance Tip on his Web site, Texasadvocacy.com, and he holds an annual conference — last year's was sold out — on the various dos and don'ts.

And he lobbies, too. Last session, he helped push through a bill that in effect, allows lobbyists to send a holiday turkey to a lawmaker's home without having to be present when it is eaten. "We do a lot of little things like that."

A believer that disclosure generally works better than restrictions, Gullahorn isn't prepared to call for campaign limits, at least not yet.

"We can't save the world," he said. Campaign limits "are on our radar screen but they're secondary."

While the lobby scandal simmers in Washington, few people expect major ethics reform to pass in Texas.

Rep. Craig Eiland, D-Galveston, wrote last year's proposal to bar corporate and union money from being spent on mailers in the last weeks of a campaign. Although it had 89 co-sponsors in the House, the measure was defeated, an outcome largely attributed to opposition from Craddick. Craddick has said he was neutral.

Eiland said he will file the same bill next session, but he's not optimistic. And he hasn't thought about proposing limits on individual or corporate campaign donations.

"I don't know that people would go for that," he said.

Lewis, of Campaigns for People, predicted meaningful reform would probably fail because of opposition from two sectors: lobbyists and lawmakers.

Lobbyists aren't wasting any time even though the November election is still months away and the next regular legislative session doesn't start until mid-January.

Lobbyists organized a fundraiser last month for Republican Dan Patrick, who won the primary election to fill an open Houston state Senate seat. Eight people signed up to host the event at the Austin Club, where most politicians hold their fundraisers. Every sponsor was a lobbyist.

And Patrick won't even join the Legislature for another 272 days.

lsandberg@express-news.net

Staff Writer Gary Scharrer and News Researcher Julie Domel contributed to this report.

As originally published this article contained an error.

Lobby Watch:Industry Pays Tribute to the King of Dereg

The Dallas Morning News recently published a graph showing how Texans’ electric rates shot past the national average after deregulation hit Texas in January 2002. Yet the graph failed to address how deregulation has affected the politicians who—all evidence to the contrary—have sold deregulation as a boon to consumers.
Read the Lobby Watch

Lobby Watch:Leveraging a Buyout: TXU's Takeover Lobby Cost About $17 Million

TXU and its suitors spent approximately $17 million in early 2007 to convince state officials not to impose significant consumer or environmental restrictions on the giant utility or its pending takeover by the Texas Pacific Group and Kohlberg Kravis Roberts & Co.
Read the Lobby Watch

Fort Worth Star-Telegram: TXU seeks a lock on the market

In a deregulated market, the government isn't supposed to pick winners and losers. But TXU's request to build 11 coal-fired power plants puts Texas in the position of kingmaker. So far, the debate has been mainly about the plants' effects on air pollution and global warming, which will be the focus of state hearings. But let's not overlook the impact on competition and innovation. TXU is already the state's largest power producer. Add $10 billion worth of low-cost coal plants in one fell swoop, and the Dallas utility may lock up much of the market before anyone gets the chance to experiment.

TXU seeks a lock on the market

By Mitchell Schnurman, Star-Telegram Staff Writer
2/21/07

In a deregulated market, the government isn't supposed to pick winners and losers. But TXU's request to build 11 coal-fired power plants puts Texas in the position of kingmaker.

So far, the debate has been mainly about the plants' effects on air pollution and global warming, which will be the focus of state hearings.

But let's not overlook the impact on competition and innovation. TXU is already the state's largest power producer. Add $10 billion worth of low-cost coal plants in one fell swoop, and the Dallas utility may lock up much of the market before anyone gets the chance to experiment.

"We could have excess power capacity for at least 10 years, and that would pretty much exclude all the new technologies from entering Texas," said David Litman, a Dallas entrepreneur who founded hotels.com.

Litman leads a large group, Texas Business for Clean Air, that opposes the TXU plan and is lobbying the Legislature to delay TXU's request. Dozens of prominent business leaders are on board, including developer Trammell S. Crow and the chairman of The Container Store, Garrett Boone.

Usually, those are the kind of guys who support TXU and any business expansion, particularly something as crucial as electricity. But they say the plants would be bad for business because more air pollution threatens federal funds, discourages corporate relocations and makes it tougher to recruit talent to the area.

Not surprisingly, TXU says rejecting the plants would be bad for business. It would lead to higher prices and an uncertain energy supply, keeping more companies away.

So which is worse, expensive electricity or dirty air?

In Texas, unfortunately, we already have both. Toyota and Boeing scratched North Texas off their lists of possible manufacturing sites because of air quality. And electricity prices have been among the country's highest since deregulation began early in the decade.

Something isn't working, and consumers have been complaining loudly. That's why lawmakers in Austin are considering ways to improve deregulation. One suggestion: figure out a way to encourage innovation in clean technologies in addition to watching prices all the time.

Advances in technology hold the most promise for a long-term solution -- a power plant that generates affordable energy without harming the environment.

Those breakthroughs are important to more than Texas. The biggest threat to global warming comes from developing countries that are building coal plants rapidly as more of their people get electricity for the first time.

Why can't Texas try to become a hotbed for new power plant technology and then try to export that to China and India? The state is already a leader in wind power.

With a growing population and expanding economy, it should be able to attract all kinds of players with new ideas as long as there's room to operate.

TXU getting its way would suck the oxygen out of the market because TXU's price basis would be so low, Litman says. Others couldn't match its costs because they wouldn't build as many plants or have the same kind of existing environmental permits.

Many critics also say that TXU is rushing the timetable so the plants can be approved before Congress imposes carbon restrictions. That would make facilities more expensive, adding a burden for potential rivals.

Simply proposing 11 new plants might dissuade some competitors from exploring the market, says Clarence Johnson of the Office of Public Utility Counsel, which represents residential and small commercial customers in utility cases.

"It's an issue of market power," Johnson said. "Even if there might be a market for others, there may be too much risk to try to compete."

TXU's proposal is too audacious for most companies to attempt, as evidenced by the surging opposition from business leaders, mayors and environmentalists. But TXU has serious clout in Austin, where it consistently ranks No. 2 in spending on lobbyists, according to Texas Ethics Commission records compiled by Texans for Public Justice, an Austin research group.

TXU currently has 59 people, including employees, registered to lobby the Legislature. Two of the hottest issues this session -- deregulation and coal plants -- involve TXU directly.

One lawmaker has proposed a cap on a company's generating capacity in any single region rather than for the state as a whole. The Legislature imposed a statewide cap earlier, hoping that would prevent market dominance and the risk of manipulation.

If a new limit were approved on a regional basis, TXU would have to divest plants in North Texas, where it's the dominant provider.

There's also a proposed amendment that would exclude coal gasification plants from the cap as a way to encourage investment in cleaner but unproven technologies. That's moving in the right direction.

If Texas sanctions some old-style coal plants for the short term, it should push hard for investments in the future, too.

Texas Observer: Overrated

Since 2002, the year some electricity markets were opened to competition, electric bills in these areas have risen 70 to 110 percent. Consumers with average-sized homes have begun reporting monthly bills as high as $500 in Houston, Dallas-Fort Worth, and South Texas. At the same time, state assistance programs for low-income consumers have been eliminated. “So many seniors are in survival mode,” says Lue Taff, elder support director at the Senior Source in Dallas, which provides a variety of services to the elderly. “They call all of the agencies that they can, they ask for help from family and friends, they eat less food, they may not buy their medications, and then they may hop around from one [electric] company to another.”Read the article at the Texas Observer

Overrated: Deregulation was supposed to lower Texans' electric bills. Instead, rates are through the roof.

Forrest Wilder | June 30, 2006 | Features

Doris Marshall is perilously close to living beyond her means. Each month this 63-year-old African-American woman who owns a small house in Satin—a spot on the road near Waco—stretches her $514 Social Security check to pay for food, 10 prescription drugs, gas for her aging Cadillac, and her phone and utility bills. She can manage—barely—but for how much longer she doesn’t know. “Only by the grace of God do I make it,” says Marshall as she sits in her living room beneath a painting of a dark-skinned Jesus. In her lap is a stack of bills from her electric provider, TXU Energy. Marshall has watched her electric bill double over the last four-and-a-half years—from $70 to $140 for a typical month—as TXU has raised its rate seven times. “That’s not good for no one that’s on a fixed income,” Marshall says. “You’re not going to get lights for free, I know, but on the same token you shouldn’t have to decide whether to buy medicine or lights.”

Marshall is one of several million Texans unfortunate enough to live in a part of the state where a grand experiment with deregulation of the electricity industry is well under way.

Since 2002, the year some electricity markets were opened to competition, electric bills in these areas have risen 70 to 110 percent. Consumers with average-sized homes have begun reporting monthly bills as high as $500 in Houston, Dallas-Fort Worth, and South Texas. At the same time, state assistance programs for low-income consumers have been eliminated. “So many seniors are in survival mode,” says Lue Taff, elder support director at the Senior Source in Dallas, which provides a variety of services to the elderly. “They call all of the agencies that they can, they ask for help from family and friends, they eat less food, they may not buy their medications, and then they may hop around from one [electric] company to another.”

Taff and other social-service workers report that requests for help with electricity bills have been climbing for the past few years. So far this year, the 2-1-1 hotline, which connects people with nonprofit groups and government agencies, has received over 126,000 calls for electric-bill assistance in Texas, 83 percent of the total call volume. While some cities and utilities maintain funds for bill assistance, the agencies don’t have enough money to meet the demand each month. They are being asked to fill in for the state, which until September of last year offered a 10 to 20 percent discount to some 400,000 low-income households. “The social safety net has turned into a cargo net,” says Joe Sanchez, AARP’s associate state director for advocacy.

Some lawmakers and consumer advocates contend that the primary accomplishment of deregulation so far has been to boost power companies’ profits. Meanwhile, true believers in market economics say Texas needs more time to see the benefits of economic competition. The one thing both sides agree on is that Texas is in deep: The Legislature has taken major steps toward deregulating and restructuring the electricity industry, and there may be no turning back.

Electricity deregulation in Texas began as little more than a gleam in Jeffrey Skilling’s eye. Skilling and other Enron Corp. executives, thinking big in the 1990s, wanted a piece of the $19 billion Texas electricity industry. The public, as even proponents will admit, had little interest in radically altering a system that provided low rates and generally reliable service. But the Legislature moved toward deregulation in 1995, setting up competition among power generators at the wholesale level. Retail competition was a much bigger gamble. To convince lawmakers and the public of deregulation’s merits, Enron and its allies promised that restructuring would offer Texans lower prices and “consumer choice.” In 1996 Skilling (now facing 185 years in prison for misdeeds at Enron) told the Fort Worth Star-Telegram that the statewide average of about 6 cents per kilowatt hour was an “absurdly high” price for electricity. “There’s nothing in this market that suggests we won’t see the same savings of 30 to 40 percent we’ve already seen elsewhere,” he said. Today the state average is almost 12 cents per kwh—and generally much higher in the deregulated areas.

The Enron-inspired dreams were entrancing, though, to the Texas Legislature in 1999. That year, lawmakers approved a deregulation plan with bipartisan support. The new law, called the Texas Electric Choice Act (Senate Bill 7), was designed to turn the regulated system on its head. Instead of regulators setting the rates of vertically integrated utility monopolies, prices would be set by market forces. To accomplish this, SB 7 forced the privately owned utility companies to break up (or “unbundle”) into three components. The vast majority of the 82 city-owned utilities and 74 rural electric cooperatives, which together serve 6 million Texan customers, chose to opt out of retail competition. Other areas with investor-owned utilities—El Paso, East Texas, and the Panhandle—were not generally subject to deregulation.

For everyone else, it was a new day. Companies could get into the power generation business, or into transmission and distribution of electricity, or the retail and marketing end of things. (The transmission and distribution of electricity, considered a “natural monopoly,” remained regulated, while the production of power and the retailing to consumers was opened to competition.) The old utilities could split into separate companies or restructure as a holding corporation with distinct businesses. To get the process going, the Legislature forced the largest utilities (Houston Industries, now Reliant Energy Inc., and Texas Utilities, now TXU), to sell off enough power plants to reduce their market share to 20 percent of generating capacity. At the same time, companies were allowed to recoup some $9 billion in unpaid debts tied up mainly in the state’s two nuclear power plants. Consumers and industrial power users are still paying for these costs through a monthly charge on each bill.

On January 1, 2002, after a three-year rate freeze, the initial round of retail competition began with new companies vying to win customers. Reliant could sell electricity in TXU’s backyard and vice-versa; a start-up company with $100,000 in capital and not a single power plant could try to snatch market share from the big boys. To give the entrants a leg up, SB 7 makes the successors of the former monopoly utilities—First Choice Power, CPL, WTU, Reliant, and TXU—subject to continued limited regulation. They are required to offer an above-market “price-to-beat” rate to individuals within their regional service areas who have not switched to an alternative provider. Twice a year, the retail companies offering the rate can ask the Public Utility Commission, the state’s regulatory agency, for an adjustment to the price-to-beat based solely on the price of natural gas. (At the time SB 7 was drafted natural gas was cheap and favored for being relatively clean-burning.) In 2005, the incumbents were allowed to begin offering electric plans other than the price-to-beat. And on January 1, 2007, the price-to-beat will be lifted, and full-blown competition will commence. The government’s role will be limited to coordinating the electric grid and policing the unfettered market.

At first, economists, lawmakers, and industry reps hailed Texas as the model for deregulation. Even in 2001, the year before retail competition began, when California’s deregulation experiment suffered from blackouts, price gouging, and illegal trading activities by Enron and others, deregulation proponents touted the safeguards in the Texas model. But in the aftermath of California’s disaster and Enron’s 2001 collapse, many states hit the brakes on deregulation. Thirty-four states have scrapped or delayed retail deregulation or have confined it to large business customers, according to a 2005 study by energy industry consultants. “Now as the fiction of deregulation is exposed, more are figuring out how to get out of it,” says Mark Cooper, director of research with the Consumer Federation of America. Texas, he notes, is “hard-core” and represents perhaps the last stand of deregulation in the United States.

With that in mind, the free-marketers have sought to fight off the naysayers. In April, Jim Burke, the CEO of TXU Energy, the largest power company in the state with over 2 million customers, told lawmakers gathered to discuss electricity issues the day after rolling blackouts across the state, “Texas has by far the most successful market in the country and [is] arguably on its way to the most successful market in the world.” Burke cited figures that show 30 percent of Texans have switched to an alternative provider. He spoke of competitive alternatives to the price-to-beat in the most expensive deregulated regions and of innovative electricity plans. He noted that there are a dozen retailers in some service areas, far more than any other comparable state. Burke also acknowledged the elephant in the room: “However, there have been a lot of challenges. Higher prices have cast doubt on whether this is a successful model.”

Rep. Sylvester Turner, a Houston Democrat, was a supporter of deregulation in 1999, but he is now one of the system’s fiercest critics. Hailing from a solidly Democratic district in Houston where 20 percent of the people live in poverty, Turner understands how a penny-ante issue for affluent people like the monthly electricity bill can be of paramount concern to households surviving paycheck to paycheck. “The reality is that Texas used to be a low-cost energy state,” he says. “Not only do we [now] exceed the national average, we exceed what people are paying in regulated areas, what people are paying in co-ops, city-owned utilities.”

In April, Turner, an 18-year veteran of the Legislature who mixes a lawyer’s intellectual precision with preacherly appeals to the common good, organized a town hall meeting in Houston to discuss electricity rates. Houston Mayor Bill White attended, as well as two U.S. congressmen, representatives from the electric companies, and consumer advocates. The turnout surprised Turner: 700 people—frustrated and angry—came from all over the city to complain about high rates and confusing choices. “No matter what the PUC and the industry is trying to convince people, that all is well and this is the best thing going and you’re really getting a good deal,” Turner said, “I’m sorry, I think the people beg to differ.”

During the recent special session called by Gov. Rick Perry to draft a school finance plan, Turner proposed legislation to give rate relief to electricity consumers. One bill would have restored the $400 million “Lite-Up Texas” program, created as part of SB 7, to its original purpose—providing a 10 to 20 percent subsidy to low-income electric customers. (Although the state continues to collect fees from customers’ bills for the fund, the Legislature transferred the money into general revenue in 2005.) Turner also proposed forcing the former monopoly utilities to adjust their price-to-beat rates downward to reflect lower natural gas prices, which he said would save the average consumer an estimated $20 to $25 a month. (With 1.7 million TXU customers on price-to-beat, the total savings for these households each month would be about $40 million at current natural gas prices.) Since the price-to-beat goes away in January, Turner was pitching the bill as “summer relief,” as well as a way to get prices on track for full-blown competition next year.

Turner says customers are paying “artificially inflated prices” because the companies adjusted their rates upward, with PUC approval, after hurricanes Katrina and Rita when natural gas prices soared. Since then, natural gas has come down about 25 percent, but the price-to-beat electricity rates have remained the same. “It is certainly accurate to say that the specific price-to-beat, how it stands now, is inflated over the market price as it stands now,” said Terry Hadley, PUC spokesman. But, he added, incumbent companies phased in their price-to-beat rates so as to minimize impact and are offering discounts to customers who wish to switch off the price-to-beat.

But under the market design, inflated power prices should afford the other companies the opportunity to beat up on the incumbents. Oddly, the competitors’ rates have hardly budged. Tim Morstad, an analyst with the Office of Public Utility Counsel, the government’s consumer watchdog for utility matters, has calculated that the supposedly competitive rates have dropped less than 3 percent statewide since the beginning of the year.

The reason, Turner says, is that “it’s to [the competitors’] advantage for the market to be artificially higher than it should.” This way, the companies can still offer a small discount under the price-to-beat while keeping an ample profit margin. In fact, while competitive rates have not climbed as steeply as the price-to-beat, an Observer analysis of PUC data shows that the average competitive offer in all five major service areas has jumped considerably. The increases range from a low of 57 percent (First Choice Power area) to 105 percent (WTU area) between January 2002 and April 2006. Competitive companies within the TXU service area came in at a 77 percent increase, and the Reliant area power companies, 80 percent. CPL area competitive prices jumped 79 percent. If this is a competitive market, consumers can be excused for being the last to know; it appears that competitors followed closely on the heels of the price-to-beat as the price of turning on a light, switching on the A/C, or watching television became ever-more expensive.

Still, the PUC plays up the 30 percent of people who have moved off the PTB and captured some savings. “Well over a million people have switched to a competitive provider and apparently are satisfied with that,” said Hadley. But, he added, “Some people would say that’s not enough.”

Turner’s bills died in committee, a surprise to him since he had met with the governor the week before to sound him out on adding the bills to the agenda. Perry, Turner says, seemed amenable. But in the last days of the session, Perry OK’d an item from the industry’s wish list—“securitization” of bonds to pay for hurricane-related costs to the utilities—but not Turner’s bills. The next day, May 12, Turner took to the House floor to scorn the body for doing “more for the electricity people than we’ll do for mom and dad working two and three jobs just to keep their electricity on.”

To Turner’s chagrin, the PUC had joined the industry in vigorously attacking Turner’s price-to-beat-adjustment bill as government tampering with the market. PUC Chairman Paul Hudson—who only months earlier had floated a similar proposal at the PUC that was rejected by the other two commissioners—told Turner, “There are some customers in the marketplace today that I believe are paying more than they should, and I invite those customers to switch [providers].” Hudson and deregulation backers have been flogging a PUC study commissioned by Turner that concludes that a consumer in the Houston and Dallas-Fort Worth areas could have saved $1,450 and $800, respectively, over four years by switching to the lowest-cost provider each year versus what the study’s authors predict the consumer would have paid in a regulated environment. “It’s simply unacceptable that so many customers are seemingly unwilling to choose a new electricity provider in the face of new cost savings,” Hudson told Turner.

The PUC study “looks at what may have happened,” says Carol Biedrzycki, executive director of Texas Ratepayers’ Organization to Save Electricity, or Texas ROSE. “It doesn’t look at what did happen. And it’s blaming the consumer for everything wrong with this market.” Turner, who has dismissed the PUC study as a whitewash, worries that lawmakers are naïve about actual consumer behavior. “The reality is, every year people are not going to switch,” Turner says. Low-income individuals tend to “stay with the incumbent for many reasons—the trust factor, the lack-of-trust factor with other providers, they’ve been bombarded so much, they’re working two, three jobs, so they stay.”

For her part, Doris Marshall hasn’t received a single solicitation from a TXU competitor in the mail but has looked into other companies on her own. She is not impressed. “I’m skeptical about people I’ve never heard of and know nothing about,” she says. “I know TXU and Reliant.” That attitude was also reflected at a May 30 rally at a Reliant shareholder meeting organized by the community action group ACORN. Protesters there, while criticizing Reliant, Houston’s incumbent utility, for “overcharging,” said they didn’t trust other companies, especially in a power emergency. “With the hurricane incident, you don’t want to change companies,” said Patricia Thompson, a Houston postal worker. She said that with a sister who depends on an oxygen respirator, “I can’t take the chance” of switching to an unknown provider.

“When consumers complain, they are often told they can save money if they shop around,” says AARP’s Sanchez. “But there are a number of barriers to that”—high deposits based on people’s credit history, confusing offers, misleading terms of service, companies going bankrupt or abandoning the retail market, and lack of trust between new electric companies and consumers. “We think electricity is headed down the same path we’ve seen mortgages and other financial institutions headed,” says Virginia Goldman, the head ACORN organizer in Houston. “The people with the worst credit and the least amount of money are going to end up paying the most and having to go with the electric providers that have the most predatory rates.”

There is evidence that this tiered system is already in play. One company operating in the Houston area, Affordable Power Plan LP, sells prepaid electricity plans from convenience stores. At a rate of 17 cents per kwh, Affordable is the least affordable in the entire Reliant service area, but Kamram Visani, the company’s president, says it charges a “premium” for not requiring a deposit or credit check. “We have a lot of customers who have been denied services by other companies because of bad credit or no credit,” says Visani. (The PUC staff is recommending $446,000 in fines against Affordable for allegedly illegally disconnecting customers; Visani says the charges are baseless.)

In the end, many consumers say they don’t see any substantial savings from the dozen or so competing companies in their area. At least in the TXU service area, this suspicion seems to be borne out by fact.

This spring, there were 13 companies offering 30 plans to Marshall in the TXU service area, according to the PUC’s online clearinghouse, powertochoose.com. The cheapest offer—11 percent off the price-to-beat rate of 15 cents per kwh—was StarLight Electric’s month-to-month “Star Treatment Plan.” However, the fine print contains some surprises. The listed price of $134 per month can be adjusted monthly to “reflect changes in the cost of fuel used to generate electricity,” according to the company’s “electricity facts label.” And for each month a consumer uses less than 1,000 kwh—say, 999 kwh—a “meter fee” of $10 is imposed, at which point it is more expensive than the price-to-beat. Like most companies, StarLight researches an applicant’s credit history and can require a deposit ($350 in this case) if the person’s credit is found “unsatisfactory.”

Other deals rely on an almost comically complex formula for setting rates. TXU offers a variable-rate service plan called “Energy Market Tracker+” under which monthly rates fluctuate based on the price of natural gas futures contracts on the New York Mercantile Exchange. Consumers who have deep knowledge of energy trading may wish to take a chance. But getting out of the two-year contract costs $200. “The average consumer is not equipped to make these complex decisions,” says Sanchez. “If you get the wrong plan, you’re locked into it and can’t get out of it.”

Hadley, the PUC spokesperson, said the agency closely monitors the powertochoose Web site for violations of the rules, but acknowledged that some companies’ electric plans needed to be reviewed. He warned that if “something seems way too complicated that should be a red flag to at the very least be careful before signing up with such a plan.” Caveat emptor.

What makes the Texas experiment with deregulation especially interesting is that a “control group” has survived—the municipal utilities and rural electric cooperatives. Nobody disputes that higher electric rates are partly due to the near-tripling in cost of natural gas, the fuel for 46 percent of Texas power generation. But the rates of still-regulated city-owned utilities and electric cooperatives, which also use natural gas power plants, are substantially cheaper almost across the board. A ratepayer in Austin—who must buy power from the city-owned Austin Energy—spends a little less than $95 each month for 1,000 kwh of electricity. In San Antonio, it’s about $72. Austin and San Antonio have the advantage of owning their own power plants, but the statewide average bill for customers served by municipally owned utilities is a little over $100 and is $97 for cooperatives, according to the PUC.

The cheapest service plan—one negotiated by the City of Houston—in the entire deregulated market is about 35 percent more expensive. What accounts for this difference? “[T]he energy being sold in the deregulated service areas didn’t cost any more to produce than in the regulated areas,” says Biedrzycki of Texas ROSE. “The difference is in the way the pricing is established.” In the deregulated market, economists and industry experts say, expensive natural gas-fueled plants generally act on the “margin” to set the wholesale price that retail power companies must pay for all power generation. Even though it’s currently much less expensive to create electricity from coal and nuclear generators, costly natural gas plants control the market price.

“[O]wners of nuclear and coal plants have no incentive to charge anything less than the gas-based market price [to retailers],” as the Association of Electric Companies of Texas explained in a presentation to lawmakers recently.

This allows generating companies like TXU Power, which boasts a portfolio of coal- and lignite-fired power plants, to reap huge profits, $520 million in the first quarter of 2006 alone. That profit margin, says Tom “Smitty” Smith, director of consumer group Public Citizen, ultimately shows up in people’s bills. “TXU puts 38 to 40 percent of their revenue in the pocket of their shareholders,” he says. “The difference is reflected almost percent-by-percent in the cost of electricity to the consumer.” Jess Totten, a member of the PUC’s oversight division, agreed that higher prices in the wholesale market are due to “the fact that companies that own coal and nuclear are earning significant profits that are based on the difference between the market price and their cost of production.” But, he added, that’s the way the market is supposed to work. “[P]eople get price signals from the market; they see that coal is an attractive resource; and they invest in coal.” TXU definitely got the signal. With earnings of $1.7 billion in 2005, four times that of 2004, TXU is plowing that cash into 11 new coal-fired plants in Texas at a cost to the company of $10 billion. TXU expects the plants to earn $180 million a year and pay for themselves within eight years. (TXU has also been making other power plays with cash: Executives and PACs affiliated with TXU Corp. contributed at least $2 million to state candidates and committees from 1999 through 2005, according to Texans for Public Justice. During the same time period, the company spent between $5.9 million and $13.3 million on lobbying.)

Nonprofit, city-owned utilities and rural electric cooperatives, which together serve about 25 percent of the state’s residents, on the other hand, calculate the price of electricity based simply on the cost of producing or purchasing power and delivering it to customers. Austin Energy, like other consumer- or city-owned utilities, bases its rates on fixed costs (wires, power plants, payroll, etc.) plus “a dollar-to-dollar recovery of fuel costs” based on the average of their fuel costs, says Ed Clark, Austin Energy spokesman. “In other words there is no profit on that [fuel] charge,” says Clark. The only profit culled from ratepayers is 9 percent off the top that goes into the city’s coffers. Because the entire rate structure for city-owned utilities and cooperatives is cost-based, and because they spend much less on marketing and executive salaries, public power has generally been able to avoid skyrocketing retail prices. Rural cooperatives, created by farmers and ranchers in the 1930s with the help of the Rural Electrification Administration, have the unique distinction of being directly owned by the ratepayers, who exercise democratic control over the cooperative’s decisions.

Consumer advocates suggest that the best model for electricity may be a long-established one. “We as citizens could and should control our power sources,” says Smith. “Take back our power supply ... and develop new municipal utilities and new rural electric co-ops. That’s the preferred way.”

But undoing deregulation is easier said than done. “It’s a Humpty-Dumpty problem,” says Jim Boyle, a longtime Austin utility lawyer. “Once you’ve unbundled it’s extremely difficult to re-bundle.” And virtually no one in the Legislature, including Turner, is exploring the idea of “re-regulation.” The power companies, meanwhile, are promising that as retail competition matures, rates will be settled by the market, companies will develop innovative “demand-side” products such as meters that show consumers what they are paying for electricity at any given moment, and investors will be driven to build power plants that are efficient and environmentally friendly.

That leaves open the question of how electricity will play out as a political issue. A Katrina-size hurricane could disrupt natural gas facilities along the Gulf, sending prices through the roof; a scorching summer could lead to a mass of people unable to pay their bills; or a round of consolidation could leave a handful of companies controlling the power industry in Texas. One thing is for sure, says Turner: “Electricity is a political issue, and it’s going to get hotter and hotter.”

Lobby Watch:Texas’ No.1 Special Interest, SBC, Completes a Very Special Session

After Texas’ leading special interest suffered a rare defeat in this year’s regular legislative session, Governor Rick Perry called lawmakers back into a special session that accomplished little more than passing the telecommunications overhaul that SBC demanded (Senate Bill 5 or ‘SBC5’).
Read the Lobby Watch

AAS: Lobbyists lining up for phone deregulation fight

State Sen. Troy Fraser is bracing for what's expected to be one of the most intense lobbying campaigns of this legislative session. Hundreds of millions of dollars are up for grabs in the first rewrite of the state's telecommunications laws in a decade, an undertaking that affects a raft of big corporations that employ some of the most powerful lobbyists.

Lobbyists lining up for phone deregulation fight

By Claudia Grisales, Austin American-Statesman
Monday, February 07, 2005

State Sen. Troy Fraser is bracing for what's expected to be one of the most intense lobbying campaigns of this legislative session.

Hundreds of millions of dollars are up for grabs in the first rewrite of the state's telecommunications laws in a decade, an undertaking that affects a raft of big corporations that employ some of the most powerful lobbyists.

Fraser, R-Horseshoe Bay, introduced a bill that would end regulation of local phone rates in Texas within two years, one of two major telecommunications bills up for debate. To avoid being swarmed by lobbyists, he has declared that he'll deal with only one representative from each company.

"I don't know that I've ever seen an issue with this number of lobbyists hired," said Fraser, who filed the bill last week. "The number of lobbyists is proportionate to the amount of money involved in the transaction."

His decision could be challenging for lobbyists accustomed to free access to legislators. SBC Communications Inc., for example, has dozens of registered lobbyists, including Mike Toomey, former chief of staff to Gov. Rick Perry, and Bill Messer, a former state representative who is close to House Speaker Tom Craddick, R-Midland.

For now, however, Fraser is dealing only with Jan Newton, president of SBC Texas.

AT&T has signed up former lawmakers Neal "Buddy" Jones of Hillco Partners and David Sibley, Fraser's predecessor as head of the Senate Business and Commerce Committee, according to recent filings at the Texas Ethics Commission.

Messer referred calls to a spokesman for SBC; Jones referred calls to a spokesman for AT&T, and the others didn't return phone calls last week.

Fraser aside, industry lobbyists won't lack for legislators to tackle, including the eight other members of Fraser's committee and the Regulated Industries Committee in the House, where Rep. Phil King, R-Weatherford, has introduced his own bill.

Both bills would end regulation of rates for local phone service by 2007, on the premise that more competition would benefit consumers. Fraser's bill would have the Public Utility Commission determine whether there's sufficient competition in a particular area of the state to end regulation. King would leave it up to the existing phone companies in a region to decide whether they want to open their area to competition, in a system similar to the method used in deregulating the Texas electric market.

High stakes

In exchange for allowing companies to set their own rates, both bills would require SBC and other local phone companies to significantly reduce the access fees they charge long-distance competitors for in-state toll calls.

Under King's bill, companies that opt for competition also would have to give up the money they receive from the Texas Universal Service Fund, which subsidizes phone service in rural areas. King would restructure the fund, which paid providers $583 million in 2003. The two biggest beneficiaries were SBC, which received $195 million, and Verizon, which received $110 million.

The stakes are high; Texans spent $2.8 billion on basic phone service in 2003. And the deregulation debate involves numerous companies with divergent interests, which will add to the lobby activity.

SBC, the state's dominant phone company, wants an unregulated market but says it isn't ready to give up Universal Service Fund subsidies or access fees.

Verizon, which provides service in many high-cost rural areas, also says it can't afford to give up service fund revenue, which prevents the company from choosing deregulation in those areas.

"We simply wouldn't be able to take advantage of the new law," said Steve Banta, Verizon's Southwest regional president.

Millions at stake

Consumer groups worry about what SBC might do if it gets out from under state control.

Cable companies, now getting into Internet phone service even as phone companies are starting to offer video service, want equalization of the fees that telecom providers pay to cities so that cable and phone companies are treated the same.

In the last regular legislative session, the telecommunications industry, including phone companies, cable operators and Internet service providers, spent up to $13.7 million on lobbyists, and the amount is expected to be higher this session, according to Texans for Public Justice, an Austin group that tracks money in politics.

SBC alone reported lobby contracts worth up to $7.2 million in that session; companies are allowed to report spending ranges instead of exact amounts. By comparison, the Texas Cable & Telecommunications Association had lobby contracts worth up to $625,000.

The early figures "understate the reality," said Andrew Wheat, research director for Texans for Public Justice. "Generally, what we find is that lobby registrations climb all year long and especially in the legislative frenzy period, especially in a case such as telecom. It's a good time to be a telecom lobbyist."

Newton says the lobby figures for SBC may be misleading because "we do ask, in the spirit of caution, anyone that might even be remotely involved to register" as a lobbyist.

But SBC doesn't deny it intends to fight to protect its interests.

"We're a large Texas-based telecommunications company and we have over 30,000 employees," she said. "Telecom policy is a really criticalarea of economic growth, and we certainly want to be active in the process."

Rival companies are worried about SBC's clout.

"SBC's lobby prowess is legendary, and they are unmatched in spending," said Kathy Grant, vice president of government relations for the Texas Telecommunications & Cable Association, which represents the cable industry. "There is no company that spends more to lobby their interests in the state capital. We'd have to be crazy not be concerned about that."

Cities worried

The Texas Municipal League is concerned about how the bills might affect the right-of-way and franchise fees telecom providers pay cities. Overall, fees from phone, cable and gas utilities account for 9 percent of the average city budget, and telecom is "a substantial chunk" of that, said Executive Director Frank Sturzl.

"We want to make sure whatever happens there keeps us whole," he said.

Some Capitol watchers are concerned that consumers won't be well-represented on the telecommunications issue. One key advocacy group, Consumers Union, has significantly scaled back its day-to-day presence at the Capitol.

"We are probably outnumbered 400 to 1 in terms of total lobby power," said Tom "Smitty" Smith, Texas executive director of Public Citizen. Without Consumers Union in the trenches, "it's going to be worse than ever."

Tim Morstad, policy analyst for Consumers Union, says the group hopes to get consumers involved, with e-mail campaigns and other efforts asking them to contact their legislators or attend committee hearings on the legislation.

"Our strategy this session is to really do all we can to amplify the voice of consumers in this debate," Morstad said. "We are hoping to generate a small movement to provide avenues for people to voice concerns . . . and have a strong impact this time around."