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home / ftcr / commentary

Dec 19, 2000

California's Two Power Crises

by Harvey Rosenfield and Doug Heller
 
There are two power crises in California today. One is the electricity debacle, the other, a political power crisis.

The electricity crisis is the result of the utility deregulation law approved by state lawmakers four years ago. Greased with $9 million in utility money, the Legislature eliminated utility price controls imposed in 1912. The deregulation law promised consumers competition and a "guaranteed" 20 percent rate reduction. Instead, like another fiasco pioneered by the Legislature -- the 1980s deregulation of savings and loans that ultimately cost Americans $300 billion -- deregulation of electricity has proved to be a catastrophic mistake.

Freed from government oversight, the 11 independent companies that generate power for California are manipulating the supply of electricity to create shortages. Earlier this month, plants that generate 20 percent of California's electricity supply were mysteriously off-line. Others are selling their electricity to out-of-state purchasers. And some power firms are reselling their supplies of natural gas at higher margins, rather than using it to generate electricity.

These machinations led officials to warn of blackouts, while wholesale electricity prices skyrocketed 3,900 percent and industry profits soared 600 percent. The private utility companies, seeking yet another ratepayer bailout of $20 billion, are threatening bankruptcy, a preposterous tactic that ignores the billions in subsidies and profits they have reaped under the 1996 deregulation law.

With the exception of San Diego, where deregulation kicked in last summer with devastating consequences, most Californians remain unaware of the extent of the crisis. That will change when a Stage 3 electricity shortage occurs, and, with no warning, the electricity goes off. Street lights, traffic signals and crucial home medical devices will go down, seriously jeopardizing the public's health and safety.

After that will come the utility bills, which, if no action is taken and the utility companies get their way, could reach $620 per month for the average ratepayer. As always, those with limited incomes will be hurt the worst, but no one will be spared.

To avert a human and economic disaster, the state must resume the responsibility of ensuring that our electricity is provided in a safe, reliable and affordable manner. California and federal authorities should obtain search warrants and subpoenas to enter the power plants to determine the true cause of the shortages.

If necessary, the plants should be seized to protect the public health and safety. (At the present peak prices, the amount spent on electricity in just eight days will eclipse the purchase price of all the privately-owned plants in the state).

To protect us in the future, deregulation must be repealed. The Legislature must restore the authority of state agencies to oversee rates and plan for our future energy needs, encouraging cost-effective technologies such as conservation and renewable resources.

Private energy companies operating as a cartel have no incentive to alleviate the shortages they are prospering from. Instead, California should move to a nonprofit, publicly-owned system. Today, municipal utilities like Los Angeles' often-maligned Department of Water and Power are meeting their customers' needs at lower prices, without having to ask them to shut off their holiday lights.

So far, however, elected officials have yet to endorse this, or any, plan. Beginning with Gov. Gray Davis, their inability to address the electricity crisis has produced an equally serious political power crisis.

The electricity crisis defies the cautious approach that Davis prefers. If he takes the bold actions that are required, he alienates Wall Street and the utility companies, among his biggest supporters. The utilities want him to rewrite the deregulation law to force ratepayers to retroactively pay the higher costs of electricity. But any compromise on this point means huge increases for ratepayers -- the monthly utility bill could rise 40 percent or more -- and a revolt at the ballot box in 2002.

So far, the governor has focused his efforts on getting a pro-industry federal agency to rein in the out-of-state energy companies. The likely result: long-term contracts negotiated at today's ridiculously high prices, locking in high utility bills for years.



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