As the economic losses caused by California's energy deregulation
plan pile up, it's hard to find anyone these days who would disagree
with California Gov. Gray Davis' declaration that the state's 1996
electricity deregulation scheme "is a colossal and dangerous failure."
When price caps were first lifted in San Diego last summer, power
bills there tripled. "I never thought I'd be pushing socialism,"
conservative Republican San Diego County Supervisor Bill Horn conceded
at the time. "But San Diego is bleeding. When a business is used
to paying $300 a month for energy, and now it's paying $1,000, it's
going to close."
Rolling blackouts have already caused computer giant Intel to freeze
work force, and led Miller Brewing to lay off 260 workers at a Southern
California plant. School districts have announced they'll be making
the difficult choice between offering their students light, heat or
textbooks. Federal Reserve Chairman Alan Greenspan has warned that
California's energy crisis could plunge the entire country into a
recession. Across the board, California consumers already pay the
highest rates in the nation. And now their rates may go up again.
The state's two big utility companies, Southern California Edison
and Pacific Gas and Electric, say they need a multibillion-dollar,
consumer-financed bailout to stave off bankruptcy. Edison and PG&E
insist they can't afford the current wholesale price of electricity--which
is 10 times the price it was when the utilities were regulated monopolies,
before they sold off their power plants to out-of-state companies
like Texas-based Enron and Duke Energy of North Carolina.
But consumer advocates are quick to point out that both big utilities
have unregulated subsidiaries that are making record profits. "These
companies have plenty of assets," says Doug Heller of the Santa
Monica-based Foundation for Taxpayer and Consumer Rights. "They
could bail themselves out."
Edison's parent company, Edison International, owns power plants
in 13 states and six foreign countries as well as a telephone company
in Switzerland and a cable company in Mexico. On January 22, the
supposedly bankrupt company reported to the Securities and Exchange
Commission that it had $1.9 billion of cash on hand. Meanwhile,
PG&E has moved to erect a firewall between its power-producing subsidiary,
PG&E National Energy Group, and its money-losing utility company.
PG&E National Energy Group owns more than 30 power plants in 10
states and is making tremendous profits by selling to the utility
company at grossly inflated rates.
Consumer groups also note that PG&E and Edison have already taken
$28 billion from ratepayers in the form of a "competitiveness tax"
the utilities insisted on as a condition of deregulation in 1996.
When consumer groups sponsored a referendum in 1998 to repeal that
bailout and re-regulate the market, the two utilities spent more
than $40 million--a campaign fundraising record for California--to
crush the ratepayer revolt by a 73-to-27 margin. "The idea that
the utilities are somehow the victims of deregulation is patently
ridiculous," Heller says. "Utility lobbyists wrote the deregulation
legislation and have benefited mightily from it."
Further evidence of public manipulation comes from the global investment
firm Credit Suisse First Boston, which sent a memo to its clients
saying the California's rolling blackouts were not caused by shortage--but
by the utilities themselves. According to the document, the blackouts
were "intended to soften up the legislature and the voters to the
need for rate increases." Shortly after the memo was leaked to the
press, Morgan Stanley Dean Witter urged investors to buy the utilities'
stock, upgrading PG&E's rating to "outperform."
Still, there is no doubt that out-of-state generating companies
are making the most money. Duke Energy doubled its revenues as deregulation
took effect. Enron announced on January 22 that its stock had gone
up 89 percent in a year. Another Texas company, Dynegy, tripled
its net income. Evidence is mounting that the generating companies
are fixing prices. On January 28, the agency that oversees the state's
power grid reported that 49 power plants had been turned off, leading
to speculation that energy companies are manufacturing artificial
shortages in an effort to raise wholesale prices.
This pattern is leading some lawmakers to push the idea of publicly
owned power. Residents and businesses in Sacramento and Los Angeles,
where the electric grid is municipally owned, haven't seen their
rates increase at all, and neither public power authority is feeling
the pinch of higher wholesale energy prices because both generate
their own energy. Demonstrations at PG&E's headquarters in San Francisco
have become common, with ever-larger crowds calling for the municipalization
of that city's energy system. The protesters say they want PG&E
to stand for "Public Gas and Electric."
That idea is gaining steam in Sacramento. "There's got to be a
California Power Authority," insists state Senate President John
Burton, a Democrat from San Francisco. "If we give [the utilities]
billions of dollars, we've got to get something in return. Just
like I give you a dollar, and you give me a hot dog." Indeed, lawmakers
in both parties are taking great pains to portray any utility bailout
plan as a give-away. So while a broad consensus has been built for
a $5 billion to $10 billion rescue plan, most insist that the state
should receive assets of similar worth in return. Such a deal could
include the high-voltage power transmission system, a massive hydroelectric
dam network in the Sierra Nevada mountains, or ratepayer stock in
the utility companies (see below). In any case, such a deal would
mean a big rate increase for consumers.
The energy crisis also has spawned a renewed push for conservation
and renewable energies. Wind and solar power now make up less than
3 percent of California's power grid. Legislators are proposing
as much as $1 billion in subsidies for alternative energy and energy
conservation. State government has already cut its energy use by
5 percent in an effort to make more energy available to homes and
businesses and avoid rolling blackouts.
None of this has lessened the appetite for deregulation in other
states. According to the Energy Department, 42 states have taken
at least one step toward deregulating their energy industry, and
no state has reversed course. Price caps will be lifted in New York
next year; Illinois, Michigan and Texas are set to eliminate price
controls by 2002. States that continue to tightly regulate the energy
market are mostly rural ones like Idaho, Nebraska and South Dakota.
President George W. Bush is an outspoken proponent of deregulation.
It's no coincidence that Enron gave the Republican Party more than
$1 million last year, and the company is the president's biggest
lifetime campaign contributor. Since taking office, Bush has urged
California to gut its landmark environmental laws to facilitate
faster construction of more natural gas plants. He also contends
the state's energy crisis shows the need for opening Alaska's Arctic
National Wildlife Refuge to oil drilling. For his part, Vice President
Dick Cheney says California companies should seriously explore building
power plants in Mexico, where environmental rules are weaker. After
initially balking at the idea, Mexican President Vicente Fox has
given his tacit endorsement to the plan.
Still, Bush's policies don't represent a big change from the Clinton
administration, which refused to cap wholesale prices. Activists
say such a step could have brought the crisis under control months
ago. The new Republican head of the Federal Energy Regulatory Commission,
Mississippi attorney and deregulation proponent Curt Hebert, was
originally appointed to the FERC by Clinton.
And even at the state level, most politicians still insist deregulation
can work if it's formulated properly. "If deregulation can't work
in California, it can't work anywhere in America," Davis says. "But
I haven't given up on it yet."
Aaron Glantz covers California politics for KPFA radio.
He also produces "Free Speech Radio News," a weekly broadcast by
freelance reporters on strike against Pacifica Network News.