'Let the market
work'?
Deregulation to blame
for California energy crunch
By
Richard Becker
San Francisco
"Let
the market work" has been the battle cry of capitalist ideologues for more
than two decades. Free capital from all restraints, they argue, and public
benefit will soar along with profits.
Well,
check out
California.
California's
electric power system has nearly collapsed several times in recent weeks. Only a
combination of emergency measures and luck has averted rolling blackouts in the
country's most populous state.
In
San Diego County, the state's second largest, utility bills have doubled,
tripled and quadrupled in the last year, a preview of what may be in store for
the rest of California
residents.
The
direct cause of California's power crisis is electricity deregulation, or in
other words, "letting the market work." And for the electric power generating
and distribution industries it has worked very well. They are reaping profits
that have increased by up to 900 percent on investment, according to none other
than California's pro-big business Democratic Gov. Gray
Davis.
The
soaring price of natural gas, which fuels many power plants, is another major
cause of the crisis. On Dec. 19, it was announced that two class action suits
have been filed against Southern California Gas, San Diego Gas & Electric
and their parent company, Sempra Energy. The suits charge that the defendants
have engaged in the "largest gouging of energy consumers in American history,"
allegedly conspiring to restrict natural gas supplies to the
state.
Also
named in the class action suits is El Paso Energy Corp., the largest natural-gas
pipeline company in the
U.S.
The
source of the fantastic power-industry profits is an astounding rise in the
prices charged by the generating companies and re-sellers of electric power. In
less than 12 months, the price of a megawatt of electricity has gone from less
than $45 to over $1,400 at times--a more than 6,000-percent increase! When the
regional power grid has been most threatened with the prospect of collapse, the
generating companies have jacked up the prices even
higher.
Deregulation
after heavy
lobbying
Deregulation
was passed by the state legislature in 1996 and signed by then-Gov. Pete Wilson,
due to a heavy lobbying effort by the big utility companies. Deregulation, the
utility monopolies and other energy capitalists preached, would give California
residents and businesses the "freedom" to select the power company of their
choice.
What
good this "freedom" could possibly do for a renter or homeowner was never
addressed. Neither was the question of why monopolies like California's three
giant utilities--Southern California Edison, Pacific Gas & Electric, and San
Diego Gas & Electric--would advocate the freeing of their captive
markets.
In
a Dec. 18 column in the Los Angeles Times, consumer advocate Harvey Rosenfield
wrote that the big three California utilities pushed for deregulation in 1996,
but "were worried that their bloated bureaucracies would not be able to compete.
So they demanded that the ratepayers be forced to subsidize billions of dollars
in uneconomic deals on the utilities' books.
"The
Legislature agreed, freezing residential and small business electricity rates
for four years at 50 percent above the national average. In exchange, the law
stated that once the debts were paid off, the rate freeze would end and
consumers would receive a 'guaranteed' 20-percent rate reduction. Ratepayers
have paid Edison $9.3 billion so far under the 'competition tax.' That was
Bailout
I."
As
part of deregulation, the big utilities had to begin selling off their
generating plants. The plants were purchased by about a dozen power companies,
the biggest of which included Enron, Duke Energy, Reliant, Southern Energy and
Dynergy. The California utilities used some of the proceeds from these sales to
build new generating plants in other parts of the
country.
Duke,
Enron and the other power-generating companies now sell their power to the Power
Exchange, California's centralized electricity market. California utilities, in
turn, are required to buy their energy from the Power Exchange.
The
California power grid is also linked to a larger western grid that includes
Oregon and Washington state. The arrangement has worked relatively well because
the usual peak seasons for power consumption are summer in California
(air-conditioning) and winter in the Pacific Northwest (heating). Thus it is
particularly ominous that California's power crisis has erupted in what is
usually the slow time of year for electricity
demand.
Anarchic
capitalist
growth
But
overall demand has increased sharply, particularly in areas like Silicon Valley,
where the computer industry and its huge appetite for electricity have boomed,
raising electricity demand by 14 percent in the last year alone.
Gov.
Davis has nothing to say about this anarchic and unplanned capitalist growth.
Instead the governor has repeatedly called for people to keep their holiday
lights turned
off.
The
Power Exchange is required to purchase electricity from the generating companies
at deregulated "free market" prices. The power-generating companies have
manipulated supply, particularly at times of high demand, frequently causing
prices to spike at several hundred times what they were a year ago. One way of
driving down supply and driving up prices has been to shut down many plants at
the same time for "routine
maintenance."
Some
of the sellers of electric power own no generating plants at all. They are
brokers, speculators like the Morgan Stanley Capital Group, which buy and sell
blocks of power to utilities or other
brokers.
As
a result of deregulation, profits for the power companies and brokers are
astronomical. A few examples: Southern Energy's Pittsburg, Calif., plant,
purchased from PG&E in 1998, will exceed $106 million in profit this year,
compared to $21.6 million last year. Reliant's Oxnard facility's profits this
year will be more than $90 million, compared to $17.3 million last year. Duke
Energy's Morro Bay and Moss Landing plants will reap a combined $343 million in
profit, compared to $65 million last
year.
Now
the big utilities that forced through deregulation are screaming for relief,
with PG&E claiming that it is losing $1 million per hour. They want a second
giant bailout from residential customers. And Gov. Davis wants to give it to
them, despite the fact that for five years they have been making super-profits
from their 50-percent-above-national-average electric
rates.
Davis's
attempt to appear as a "champion of the people" is based partly on his fear that
the energy crisis could cost him dearly in popular support. But more than that,
Davis is speaking for Silicon Valley and other capitalists who see the huge
increase in power costs as exacerbating an already serious economic
downturn.
And
while deregulation is the immediate cause of California's power crisis, one
which may preview what is to come in other deregulating states like New York,
the deeper problem is the system of capitalist property itself. This crisis has
to raise the fundamental question of how a small band of piratical profiteers
have come to own the world's energy resources. The answer, in short, is that
they stole them.
A
real resolution to the recurrent energy crises will come only when private
ownership of the world's energy and other resources is ended and replaced with a
system based not on profit but on human need--socialism.
This article is copyright under a Creative Commons License.
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