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[Huck Finn’s Electricity Hut is regulated by the State. So Huck can only charge his customers a moderate fee for service. But one day, Godzilla comes to town, already in possession of a hundred similar operations. He offers a pile of money for Huck Finn’s Electricity Hut, and now Godzillacorp has a hundred and one subsidiaries all over the USA. Clearly, Godzillacorp is an interstate entity, so it is not subject to the regulations that kept Huck’s prices so low in the past. The laws that once prevented Godzilla from buying up large numbers of small independent utilities were largely repealed during the legislative bonanza that brought you Enron. The coup de grace was the repeal of the Depression-era Public Utility Holding Company Act last fall. And while the giant lizard is buying up all the small utility companies, the natural gas needed to generate electricity is running out. Scarcity will impose cuts in energy use, and whoever controls the generation and delivery system will be choosing where to cut. If the weather is harsh (perhaps because of a radically destabilized climate), access to energy is a matter of life and death. And if Godzilla is in charge, will Huck and his dirt-poor client base be around much longer? Deregulation + arbitrage = hypothermia.
And whom do we find at the heart of all this? May Shattuck, III, the same key Wall Street player, who, in another incarnation, was directly tied to some of the largest United Air Lines put options placed right before September 11th. –JAH]
THE END of the GRID
New, Deadly Links between 9/11 and Peak Oil
Enron was Child’s Play
Gobbled Utility Companies Will Spur Rapid Decline in Generation, Transmission Capacity
Michael C. Ruppert
© Copyright 2006, From The Wilderness Publications, www.fromthewilderness.com. All Rights Reserved. This story may NOT be posted on any Internet web site without express written permission. Contact [email protected]. May be circulated, distributed or transmitted for non-profit purposes only.
In order to argue that the massive and well-documented insider trading that occurred in at least seven countries immediately before the attacks of Sept. 11 did not serve as a warning to intelligence agencies, it is necessary to argue that no one was aware of the trades as they were occurring, and that intelligence and law enforcement agencies of most industrialized nations do not monitor stock trades in real time to warn of impending attacks. Both assertions are false. Both assertions would also ignore the fact that the current executive vice president of the New York Stock Exchange (NYSE) for enforcement is David Doherty, a retired CIA general counsel. Also ignored is the fact that the trading in United Airlines stock -- one of the most glaring clues -- was placed through the firm Deutschebank/Alex Brown, which was headed until 1998 by the man who is now the executive director of the CIA, A.B. "Buzzy" Krongard.
One wonders if it was a coincidence then, that Mayo Shattuck III, the head of the Alex Brown unit of Deutschebank -- which had its offices in the WTC -- suddenly resigned from a $30 million, three-year contract on Sept. 12, as reported by the New York Times and other papers.
Briefing Paper - The Case for Bush Administration Advance Knowledge of 9/11 Attacks, Michael C. Ruppert, FTW April 22, 2002
Or, when the new energy bill is signed by George W. Bush, Big Oil (along with Warren Buffett) might just start buying up every major power and water utility in the country. They will be allowed to do that now for the first time since the Great Depression. Then – with the help of PROMIS software – Big Oil just might shut off the power selectively to any Enemies of the State it wishes: especially those who are too loud.
Michael C. Ruppert, www.fromthewilderness.com Aug. 5, 2005
Houston also admitted that the primary company responsible for all of CIA covert air operations, was a holding company named Pacific Corp. There is an Oregon-based corporation known as Pacificorp which has a multitude of sub-entities with varying versions of the name including Pacific Power & Light, Pacificorp and Pacific Harbor Capital. In 1993 a Seattle paper ran a story connecting Pacificorp to CIA's Pacific Corp. Under oath, before the Senate in 1976, Houston admitted that Pacific Corp. owned and controlled such CIA notables as Air America, Southern Air Transport and Intermountain Air. In 1976 the CIA was ordered to sell Air America and divest itself of all its holdings.
Michael C. Ruppert, “Only the Godfather,” FTW Dec. 1998
January 4, 2006 0800 PST (FTW) – With the eagerness and drive of a baseball player on steroids, the largest financial powerhouses in the nation have been gobbling up publicly owned utilities since George W. Bush signed the new energy bill last fall. It is not just that ownership of these life-essential services is being concentrated in a few rich and unregulated hands — it is the identities of the owners that should make worry about what’s coming. If the writing on this wall got any clearer, you’d need to buy a box of popcorn and sit down for the horror show.
Best get a blanket and some long johns first.
Since the passage of America’s most recent energy bill on August 8th, many public utilities have been acquired by some of the wealthiest people on the planet. With the loss of public regulation that came with the repeal of the Public Utility Company Holding Act as part of that measure, these “cash cows,” to which tens of millions of people make monthly payments, are being converted into liquid giants that can be used to acquire other utility companies, or to trade ever-diminishing energy resources for profit. There is no rationing by government yet, only the rationing of the “free markets.” That’s only until the wheels come off and Peak Oil and Gas trigger uprisings and “civil unrest” (I absolutely detest that term – the word is “riot,” and it is not solved by a quick second or third mortgage). Only then will government step in, and then only to try and prop up the façade of a sustainable paradigm of infinite growth.
Instead of maintaining the grid for as long as possible, these amalgamating giants will now accelerate its demise. What is about to happen is the living embodiment of a statement made by a Dutch economist at a Paris Peak Oil conference in the spring of 2003: “It may not be profitable to slow decline.”1
No more will utilities invest ratepayers’ money in extra capacity for the 20-year drought, the 50-year heat wave or the 100-year cold snap. Instead, every ounce of extra capacity will be sold off, under-maintained, or discontinued to maximize cash on hand for the next buyout or LBO. Ratepayer money will be used for the benefit of shareholders, not ratepayers. When it comes time to decide whether to make a handsome profit or keep people warm, there won’t even be a debate. These privately owned giants will be able to arbitrage energy to the highest bidder. They will be able to buy other, smaller entities just as the major oil companies have been doing for decades, adding the smaller companies’ reserves and net profits onto their price/earnings (P/E) ratios.
The grid will not disappear suddenly, as if someone had thrown a switch. It will behave exactly the way energy supplies behave. Just as the world will never fully run out of oil or gas, it will have to make do with less and less. It will be a protracted death, full of agonies, full of fits and starts, and it will happen sporadically, with the weakest regions being the first to suffer. The onset of this terminal illness is becoming apparent this winter.
No more do utilities have as a primary mandate the protection of the poor and weak. No more will they prioritize the equal distribution of access to reasonably priced services. Instead, as Peak Oil and Gas worsen, they must focus their attention on providing energy only to corporations that make and sell things, or to those rich enough to pay prices that increase faster than necessary. Their cash will be used to purchase ever-larger chunks of market share as energy prices exceed the reach of the public. Employees be damned. Families be damned.
What we are watching is the start of a bidding war over diminishing energy resources. But the bidding will only make matters worse. It will accelerate the inevitable collapse, make it harder, and wreak needless harm on millions of people.
The man who has stepped onto center stage in this ominous limelight is none other than Mayo Shattuck, III — the man who, as head of the Alex. Brown unit of Deutschebank, knew and approved of massive insider trading in United Airlines stock just before September 11th, 2001. He has just shepherded the largest single utility merger in American history in an $11 billion deal that will create the largest utility company in the nation, with a market capitalization of $28 billion. The new company, formed from Constellation Energy Group and Florida Power and Light, will operate in many states – and thus remain exempt from state regulation.
(Mayo Shattuck, III – photo Constellation Energy Group Web Site)
Mayo Shattuck resigned suddenly from Alex. Brown on September 12th, 2001, walking away from a multimillion-dollar contract. Instead, he became CEO of the then-obscure Constellation Energy Group. Shattuck had never worked in the energy field. That was odd, and it remained unexplained until about two weeks ago. As I wrote in Crossing the Rubicon, The Decline of the American Empire at the End of the Age of Oil:
Mayo Shattuck III — another clue
Mayo Shattuck III is an extremely powerful and influential mover and shaker in the financial world. As head of the Alex. Brown unit of Deutsche Bank on 9/11, he had previously been involved in deals with Russian ruble trading, Microsoft, the Bronfman dynasty, Enron (where he assisted in deceptively concealing Enron’s debts36), and with a massive insider trading scandal involving Adnan Khashoggi’s Genesis Intermedia right before 9/11.37 He was midway through a three-year, 30-million dollar contract as the head of the Alex. Brown unit of Deutsche Bank when the attacks came. Shattuck (who knows Buzzy Krongard well) took over Alex. Brown operations after Krongard had officially gone to the CIA in 1998. It was under Shattuck’s management that some of the criminal trades on United Air Lines were placed right before 9/11.
Mayo Shattuck resigned suddenly on September 12th, the day after the attacks.38 A close associate of CFR powerhouses like Peter G. Petersen and Steven Bechtel of the Bechtel Corporation, Shattuck is today the President and CEO of Constellation Energy Group, one of the firms that gained access to Vice President Dick Cheney’s energy task force, the one from which the Bush administration is unconstitutionally refusing to release the records.
Alex. Brown also played a key role in refinancing the Carlyle Group for its acquisition of United Defense Technologies in 2000.39 This close connection to Bush family business ventures is not a surprise because Alex. Brown’s connections to the Bush family stretch back for at least seven decades. The Alex. Brown investment bank helped to finance and organize the firm managed in the first half of the 20th century by George W. Bush’s grandfather, Prescott Bush: Brown Brothers, Harriman.2
In December, 2005 Shattuck presided over the buyout (all stock, and hence no taxes for shareholders) of Constellation by Florida Power and Light (FPL) to create the largest utility in the country — one that will have power plants in Florida, Maryland, New York, California, Illinois and Pennsylvania. Shattuck will become the Chairman of the new company, Constellation Energy. FPL’s Lewis Hay III will serve as Constellation’s CEO. 3 Constellation will have a presence in every state except Nebraska, Idaho, Montana and Vermont.4
Where Constellation isn’t in power, others (like Warren Buffett, whose own 9/11 connections remain mysterious) will be. As the New York Times reported on December 19th:
The transaction extends a heady year for deals in the power industry, following Duke Energy’s acquisition of the Cinergy Corporation for $9 billion; Berkshire Hathaway’s [controlled by Buffett] purchase of PacifiCorp for $5.1 billion; and NRG Energy’s acquisition of Texas Genco last month for $5.8 billion. Energy companies have been using growing amounts of cash and higher share prices to seize on a pivotal moment for assets that just a year or two ago were too risky to touch.
The year ahead may bring even more deals, following the relaxation of laws restricting utility ownership.5
TRADING YOUR HEAT FOR THE HIGHEST PROFIT
We saw it clearly with oil and gas in the wake of Katrina and Rita. We are seeing it now as we plunge headlong into the winter of 2005-6, a winter which is barely two weeks old. US News and World Report has described for us how, under deregulation, natural gas stocks, heating oil, generation capacity, and other forms of essential heat are now traded for the highest profit among energy giants.
… That means hundreds of closed factories and enormous hardship for low-income and working poor families, who can expect scant federal government help. And if bitter cold rides in on Mother Nature's coattails, extraordinary measures will be needed to keep energy flowing, particularly in the Northeast, as natural-gas shortages spill over into oil and electricity supplies. "We pray for warm weather. We have a prayer chain going," says Diane Munns, an Iowa regulator who is president of the National Association of Regulatory Utility Commissioners. "People are talking not just about high prices but actual shortages."
…The simple economic rule of supply and demand is now at work: The market price of natural gas hit $15 per million British thermal units (Btu) last week, well over double what traders paid last year…
Out of options. Hundreds of factories will be similarly forced to lay off workers or freeze or cut wages because of high natural gas prices this winter, says the National Association of Manufacturers. Many large companies, like chemical giant Dow, have moved major operations overseas near cheaper fuel. But smaller domestic companies don't have that option. "In manufacturing, there's just one way to use less energy, and that's to make less widgets," says Paul Cicio, executive director of the Industrial Energy Consumers of America.
Industrial shutdowns are actually vital to the current energy market because they curb demand. Without them, prices would be even higher for consumers trying to heat homes…
The curtailment of "interruptible" customers will trigger a double squeeze on consumers throughout the Northeast. First, costs for home heating oil will skyrocket, as scores of power plants and other interruptible gas customers switch fuels and make a grab for all the oil on the market…
…The second threat is a severe electricity shortage in the Northeast--with possible brownouts or blackouts. Deregulated natural-gas-fired power generators, under no legal obligation to serve customers as the old monopoly electric companies were, can simply stop generating power. Some plants will be interruptible customers with no backup fuel source. But in other cases, power plants that have firm natural gas contracts will stop generating electricity anyway and sell their fuel at enormous profit. That is precisely what happened during the three-day January 2004 cold snap, when more than 25 percent of New England's generating capacity went off line and the reserve margin was near zero.6
This inevitable arbitrage trading of energy at the expense of ratepayers has been noted by some mainstream press outlets in the wake of the Constellation - FPL acquisition.
Constellation… has also made a successful foray into energy trading, surviving a crisis in that field triggered by the collapse of Enron four years ago. Since then, Constellation has emerged as one of the strongest energy traders, competing nimbly with elite investment banks and hedge funds that have built large energy trading operations…7
MSNBC said it a different way:
Shattuck will also head its competitive wholesale and retail business, which will serve thousands of commercial, industrial and utility customers – including 72 FORTUNE 100 companies…
“Ultimately,” Hay said, “this will translate into expanded opportunities to deploy new capital wisely.”…
Constellation receives 75 percent of its profits from energy trading and power sales, which have more volatility…8
The Palm Beach Post was a little clearer. They even resorted to quoting an organization founded by Ralph Nader.
Its [FPL’s] major source of money is its out-of-state power plants, which brought in $12.5 billion in revenue in 2004 as they cranked out more than 12,300 megawatts of juice each day in three dozen states and delivered it to major businesses such as Ford Motor Co., Staples Inc and Georgia-Pacific Co…
“The primary logic, in my opinion, would be that FPL is big into merchant power, the non-regulated power plants,” said Tim Winter, a St. Louis-based analyst with A.G. Edwards and Sons…
Some still have troubles. Calpine Corp., owner of the second-largest fleet of power plants in Northern California, filed for bankruptcy protection Tuesday. The company suffered under a contract that committed it to supply 1,000 megawatts of power – enough for 750,000 homes – around the clock. The fixed-price contract led to a $400 million gain for Calpine, but soaring natural gas prices eventually turned it into a money-losing deal…
Public Citizen, the Washington-based nonprofit consumer group founded by Ralph Nader, opposes the merger outright. It argues that the companies are taking advantage of the guaranteed revenues and high credit ratings from their regulated utilities to finance the unregulated power operations.
“This is all about subsidizing the deregulation of its merchant power plants and energy trading,” said Tyson Slocum, director of Public Citizen’s energy program. “They trade electricity contracts, and that is inherently risky, and ratepayers shouldn’t be asked to guarantee risky behavior.”
Still, the new Constellation is likely to be the model for the American future…9
The term “merchant power plants” has come up in several stories. It suggests, though I have not been able to confirm it yet, that power companies will now be operating dedicated generating stations for industrial and corporate users with the best ability to pay. Weaker corporations, not on the “A” list would be allowed to die-off leaving more energy for the rest. That would mean that a Boeing plant might have plenty of power sitting right next to a neighborhood that gets none at all due to selective service interruptions designed to “curb demand.” As if any residential user would voluntarily have their heat and power shut off during a cold winter.
Washington Post columnist Jerry Knight has sounded the direst warnings from the corporate-owned press thus far. This is ironic because Warren Buffett is a director and major investor in The Washington Post Company.
Last week's $11 billion deal to create the nation's largest seller of electricity may bode well for investors…
But the merger may not be such a good deal for customers of Baltimore Gas & Electric Co., the local utility company from which Constellation of Baltimore was created. The state-regulated company that provides their power will become an even smaller part of an even bigger conglomerate that makes most of its profit through unregulated energy investments.
Even before the merger goes through, Maryland's top utility regulator has begun raising questions about whether BGE's finances have been structured to benefit its corporate parent at the expense of Maryland natural gas users…
Calling this a "subsidy from BGE ratepayers to Constellation and its unregulated affiliates," he said the company's financial practices "create costs for the ratepayers, which would not occur if BGE were a stand-alone gas company."
…What is now a diverse industry with lots of players, each serving its local community, is being transformed into a business dominated by regional, national and multinational giants.
Remember hometown banks like Riggs, American Security and First American? And local department stores like Woodward & Lothrop and the soon-to-be-departed Hecht's? Utilities are in the midst of the same kind of consolidation that put Bank of America and Citibank into every state in the union and left Federated Department Stores Inc. as America's only real department store chain.
More than the natural evolution of big business is behind the trend. First, many jurisdictions -- Maryland, Virginia and the District among them -- deregulated the electricity-generating side of the business. Then Congress unleashed the utilities to crossbreed and create a race of giants by repealing laws that had been on the books for decades that limited utility mergers.
Unable to resist the urge to merge, power companies have arranged several major deals this year. Exelon Corp. of Chicago has agreed to join up with Public Services Enterprise Group Inc. of Newark, N.J. Duke Energy Corp. of Charlotte plans to hook up with Cinergy Corp. of Cincinnati. Warren E. Buffett, a director and major investor in The Washington Post Co., has put together nine utilities under the umbrella of MidAmerican Holdings Corp. [Emphasis added]
Unleashing utilities to merge arguably rewrote the job description of power company chief executives. Their first assignment is no longer to provide electricity and natural gas as cheaply, reliably and efficiently as possible. Job one is to grow the company as fast as possible -- and the way to do that is by doing deals. Just a few months ago, Constellation made Fortune magazine's list of the nation's 100 fastest-growing major companies…
Constellation executives are so focused on dealmaking that only a month before agreeing to merge with FPL, they were trying to buy the biggest coal-burning power plant in England…
The merged company will have 5.5 million electric customers and power plants capable of generating 45,000 megawatts of power. Wachovia Securities analysts calculate that the new company will earn 54 percent of its profit from unregulated energy businesses and 46 percent from regulated utilities…10
And how will Mayo Shattuck fare personally? According to the Baltimore Business Journal:
The deal keeps Shattuck's base salary steady at $1 million for 2006, with his bonus to be set by Constellation directors. His total base salary and bonus will be $5 million in 2007 and $2.5 million in 2008 and 2009. The agreement includes a caveat that his total base salary and bonus in any year will be no less than that of the CEO, Hay.
Shattuck's previous employment agreement with Constellation (NYSE: CEG) provided that if the company changed hands, he could receive a payment of three times his annual base salary plus three times the average of his biggest bonuses in recent years -- potentially as much as $13 million. Under the new employment agreement filed Monday, when the merger closes, Shattuck will receive restricted stock with a market value equal to the cash severance payout he was originally entitled to.11
WARREN BUFFETT AND 9/11
On the morning of September 11th, 2001 a group of business executives were gathered at Offutt Air Force Base in Buffett’s home state of Nebraska. The occasion was the 9th annual Buffett Classic Golf Tournament.12 At least one of those executives, Anne Tatlock of Fiduciary Trust Company, International, was conveniently away from her desk in the World Trade Center as the attacks began.13 To my knowledge, no one has ever been able to determine that day’s guest list. Nor has anyone been able to identify how many WTC executives were already waiting safely at Offutt when George W. Bush flew there instead of going directly back to Washington after the attacks. I spent about twenty futile hours trying to dig out an answer to that question in 2002, but those cracks had long been sealed and nothing was leaking.
The connections between Peak Oil and 9/11 have been clearly established for a long time. Now, they’re even stronger.
THE HIDDEN CURSE OF DEREGULATION
Because I quote it so frequently, a remark from energy investment banker Matthew Simmons has become well known in nine countries. As he dissented from the 2001 energy report of Dick Cheney’s Task Force, Simmons commented that the reason more generating capacity and refineries weren’t being built was because the “return on investment was uncertain.” Demand was, and remains, an exponentially growing given. Therefore, poor returns could only be caused by a scarcity of the fuels running through these facilities. If profit were your only motive and you had just brought nine or twenty-nine new power generating stations online over the last four years, and you knew you needed fifteen solid years to pay them off, would you build any more? Would you build more even if you knew that another (perhaps badly needed) generating station would be taking natural gas or coal from an already shrinking supply? Would you build another if you knew it would put one of your older plants (one you hadn’t paid for yet) out of commission due to shortages?
I interviewed Matt Simmons in August of 2003 about the big New England blackout — an event I had predicted in a lecture hall in Mexico six weeks earlier. Matt also prophetically told us about what we can expect now.
FTW: What did happen?
Simmons: On a large scale what happened was deregulation. Deregulation destroyed excess capacity. Under deregulation, excess capacity was labeled as "massive glut" and removed from the system to cut costs and increase profits. Experience has taught us that weather is the chief culprit in events like this. The system needs to be designed for a 100-year cyclical event of peak demand. If you don't prepare for this, you are asking for a massive blackout. New plants generally aren't built unless they are mandated, and free markets don't make investments that give one percent returns. There was also no investment in new transmission lines…
FTW: So we have two basic camps saying that the problems are generating capacity and transmission lines, without addressing feedstock issues. What about the advocates for deregulation who argued that there would be more generating capacity as a result?
Simmons: History answers that one. Following the 1965 blackout when NERC was created there was a mandate that publicly owned and regulated power providers had to build new plants. Every five years, ten per cent was added to the generating base. As deregulation was implemented in the 1990s, it was argued that it would open up vast quantities of energy in neighboring states. In the first five years of the decade, only four per cent capacity was added over the entire period. In the second five years, only two per cent was added.14
Want to try something both scary and enlightening? Do a web search on Mayo Shattuck and see what major corporations and banks he is affiliated with. One thing that caught my eye was that Shattuck sits on the advisory council for Stanford Business School. Stanford is the home of our Secretary of State Condoleezza Rice, who is formerly both Stanford’s Provost and a former member of the board at ChevronTexaco. Rice is the same person who swore that the US government had no idea that airliners would ever be used as weapons.
Nah, there’s no connection between Peak Oil and 9/11. Let’s all just wait and see what this winter’s weather brings us. For the last few years it seems that every year has brought us a 10, 50 or 100-year event. But then there’s no such thing as Global Warming either, is there?
1 Michael C. Ruppert, “Paris Peak Oil Conference Reveals Deepening Crisis”; From the Wilderness, May 20, 2003; http://www.fromthewilderness.com/free/ww3/053103_aspo.html.
2 Michael C. Ruppert, “Crossing the Rubicon: The Decline of the American Empire at the End of the Age of Oil,” New Society (2004), p 251.
3 Simon Romero, Andrew Ross Sorkin; “Power Company Agrees to buy Another for $11 Billion, The New York Times, December 19, 2005.
4 Kristi E. Swartz, “FPL deal navigates seas of unregulated power,” The Palm Beach Post, December 25, 2005.
5 -- op cit, Romero
6 Marianne Lavelle, “The Big Chill: A winter fuel crisis of high prices and shortages could darken homes and factories”; U.S. News and World Report, December 19, 2005.
7 -- op cit, Romero.
8 Kirstin Dorsch; “FPL creates energy giant in $11B deal, MSNBC, Dec 25, 2005.
9 -- op cit, Swartz.
10 Jerry Knight, “Dealmaking Power Companies Change the Utility Landscape,” The Washington Post, December 26, 2005.
11 Rachel Sams, “Constellation locks in Shattuck for three years,” Baltimore Business Journal, December 19, 2005.
12 Joe Dejka, “Inside StratCom on Sept. 11 Offutt Exercise Took Real-life Twist” The Omaha World Herald, February 27, 2002.
13 Ron Leuty, Franklin unit rebuilds after 9/11 tragedy,” The San Francisco Business Journal, February 1, 2002.
14 Michael Ruppert, “Behind the Blackout, From the Wilderness, August 21, 2003; http://www.fromthewilderness.com/free/ww3/082103_blackout.html