INTERNET COMMENTARY SAYS THREAT OF ‘THE UNTHINKABLE’ WILL GET POLITICIANS TO ACT — THE SAME COMPANY IS PROVIDING ADVISORS TO HELP HERTZBERG CRAFT SOLUTIONS

Los Angeles Times

The same Wall Street firm that is advising Assembly Speaker Bob Hertzberg on solutions to the energy crisis stated on its Web site that the blackouts plaguing California are a tactic “likely intended to soften up the Legislature and the voters to the need for a rate increase.”

Economists for Credit Suisse First Boston Corp., which has provided two financial experts to assist Hertzberg (D-Sherman Oaks) in drafting crisis legislation, stated in a recent commentary that the blackouts represent a threat of “the unthinkable” that politicians will almost always move to avoid.

They likened California’s electricity woes to a moment in New York City’s financial crisis a quarter of a century ago when the city could not make some welfare payments and meet police and fire payrolls.

“That prospect helped energize some legislative and banker concessions that got us over the hump,” the commentary states. “The unthinkable rarely will be permitted to happen.”

As in any Wall Street firm, the economists and researchers who provide analysis for investors are independent of the investment bankers who underwrite deals for large corporations. It is the investment banking arm of the company that is assisting California lawmakers. Another financial firm, Goldman Sachs, is advising Gov. Gray Davis.

Consumer advocates, who have claimed for weeks that energy wholesalers and generators were willfully manipulating California with power shortages, reacted angrily to the banking company’s take on the state’s crisis.

“It confirms our worst suspicions,” said Harvey Rosenfield, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. “They power companies are using blackouts to blackmail the state to put up the money to bail out the utilities.”

Hertzberg initially intended to pay the Credit Suisse First Boston bankers for their time, but later determined it would be a conflict of interest to formally hire them because of the firm’s clients in the energy business, said his spokesman, Paul Hefner.

“There was no place we could find someone with this type of experience that did not have a relationship,” Hefner said.

A Credit Suisse spokesman said the company’s understanding all along was that the work was being done at no charge. He declined further comment.

At the same time that it is advising California politicians, Credit Suisse First Boston is encouraging investors to acquire holdings in the power generating companies that supply electricity to the state.

Credit Suisse First Boston notes on its Web site that the power companies are shrewdly capitalizing on information about power shortages to “manipulate the world around them” by selling their power to the wholesale market when the shortages are most acute.

Among the companies it recommends are some of the largest suppliers to California, including Duke Energy, AES and Reliant Energy.