CALIFORNIA
Profit grab behind energy crisis
By Brett
Ryan
San Francisco
The current power problem in California, caused by
deregulation of the state's electricity market, is an example
of how the free market works--or doesn't work.
In March 1998 legislation to deregulate the power industry
went into effect. The state's three utility
companies--PG&E, Southern California Edison Co. and San
Diego Gas & Electric--pushed for deregulation. They saw
it as an opportunity to expand into new markets and make
greater profits.
Company spokespeople and government officials claimed that
deregulation would lead to greater competition and thus lower
prices for consumers.
Prior to deregulation the three so-called investor-owned
utilities supplied all the electricity in California. They
generated the electricity in their power plants, transmitted
it over power lines and distributed it to customers.
Under the deregulation law, the companies were required to
"unbundle" these services and auction off most of their
generating plants. The three utilities sold most of their
plants to about a dozen other companies outside California
who now sell power back to them.
PG&E, Edison and San Diego Gas & Electric sold
electricity at regulated rates set by the state public
utility commission. But the new owners of the power plants
are free of such regulation. They can charge whatever they
want. And they have.
Their prices began skyrocketing last summer. While Edison
paid about $35 per megawatt hour in December 1999, it now
pays as much as $1,400 per megawatt hour. In the past year
the power generating companies have seen their profits
increase by 300 to 600 percent. Together they made an
estimated $12 billion in profits last year.
The utility companies, of course, wanted to pass this huge
hike in the costs they pay for electricity onto consumers.
But they were temporarily blocked from doing so.
That's because the deregulation law prohibits utility
companies from raising their rates for a certain period of
time. Specifically, the companies can't raise their rates
until March 2002 or until they recover expenses they incurred
prior to deregulation.
The price freeze was initially a good deal for the utility
companies. Rates were frozen at 50 percent above the national
average. And the utilities tacked on an extra fee to recover
past expenses.
PG&E says it paid off its old expenses last May and is
demanding the freedom to boost its rates. San Diego Gas &
Electric had already recovered its previous costs at the time
the power generators boosted their rates last summer. So it
immediately tripled and quadrupled consumer electricity
bills.
Deregulation didn't turn out to be the golden egg that
utility companies expected. Instead PG&E and Edison are
more than $11 billion in debt. And they want consumers to
bail them out.
On Jan. 4, the Public Utilities Commission okayed an
immediate 9-percent increase in electricity rates for
residential users for 90 days. After that time, regulators
will decide whether to extend this rate increase or raise it
higher. PG&E had requested a 26-percent increase.
Meanwhile the power crisis has intensified. On Jan. 11,
the California Independent System Operator--the entity that
operates the utilities' power-transmission lines--declared a
Stage-3 emergency when energy reserves fell below 1.5
percent. It was also on the verge of instituting a rolling
power outage before electricity was brought in from other
states.
Claiming they were on the verge of bankruptcy, PG&E
just laid off 1,000 workers. Edison has announced plans to
lay off 1,450 workers.
Government officials are now decrying the free market they
have always extolled.
California State Treasurer Phil Angel ides concluded in
the Jan. 13 San Francisco Chronicle, "I think everyone has
seen the evidence that if you allow markets to do what they
will, you're going to have victims."
This article is copyright under a Creative
Commons License.
Workers World, 55 W. 17 St., NY, NY 10011
Email: ww@workers.org
Subscribe wwnews-subscribe@workersworld.net
Support independent news http://www.workers.org/orders/donate.php)
HOME
:: U.S. NEWS ::
WORLD NEWS ::
EDITORIALS
:: SUBSCRIBE ::
DONATE
Email
this article
Printable
page