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Robert Sterling
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the california electricity swindle
by Robert Sterling ([EMAIL PROTECTED]) - February 01, 2001
A huge financial scandal, just in time for another Bush Administration, comes
courtesy of a legislated give-away sold to the public as "deregulation".
It's almost like a mandatory ritual for the Bush demon-seed to grab power.
Twelve years ago, it was the S&L looting, much of which was concealed from
the public until the '88 election was over (Neil Bush's S&L, for example, was
shut down the day after his father was elected.)
Now comes the California electricity swindle for "president" George W., and
though it is currently merely a state-wide fiasco (albeit the largest state,
one that controls a sixth of the US economy), it will either turn into an
early warning for other states not to follow or a shape of things to come.
Roughly half the United States have deregulated their electricity market, or
are in the process of doing so.
So far it has nearly bankrupt the state's three largest utility companies
(Southern California-Edison, Pacific Gas & Electric and San Diego Gas and
Electric), almost wiped out a huge budget surplus for a state that has
received the lion's share of Dot-com dollars, and led to widespread blackouts
- something normally associated with a Third World Nation, not a leading edge
economy. It has also led to astronomical utility bills for residents in the
San Diego area, bills that may spread if the mess isn't fixed quick.
How did this all happen? News reports often try to chalk it up to a variety
of reasons, but it really is due to only one: state deregulation of the
electricity market. The proof is in the differences in the state between the
deregulated areas and the control sample. For example, the city of Los
Angeles is hardly known for being stern power conservationist, and yet
residents are unaffected by the scandal. The reason: Los Angeles has a
municipal-owned utility system, and thus was not part of the scheme. The L.A.
utility has even profited off the mess itself, by selling surplus electricity
to the rest of the state at a profit (though at a merciful lower price than
other energy producers have gouged.) If that isn't enough evidence of a
scandal, a study by Public Citizen concluded that peak power demand has been
lower in four of the last six months, which proves the claim by power
producers that increased consumer demand is the culprit to be bogus.
California Assembly Bill 1890 was presented to the public as a remarkable
restructuring of the electricity market for their benefit. That the main
proponent of the measure was Republican Governor Pete Wilson perhaps should
have been an early warning sign that something was wrong. In his eight years
in office, Wilson - arguably the most cynical politician ever to come from
the Golden State, a major statement for the home of Nixon and Reagan -
consistently showed utter contempt to the public in all fiscal matters,
pushing an agenda that consistently hurt average people, while benefiting his
large corporate donors. (Despite his atrocious record of ruining the
California economy during his first term, he was re-elected on a
not-so-subliminally racist campaign of scapegoating immigrants and a promise
to "get tough on crime.") The Governor hyped the electricity deregulation
initiative as the crowning achievement of his reign. It certainly has become
that: the transfer of public wealth into the hands of an elite collective is
the perfect symbol for his policies.
A.B. 1890 changed the electricity marketplace radically: it split the
electricity business into one group of companies to generate power, and
another to buy and deliver it. Utility companies were to sell off their power
plants, a move they lobbied for since the high costs of building and
maintaining unprofitable plants - most notably inefficient nuclear power
plants, which didn’t lived up to the promises of their proponents - had eaten
away profits. Price caps on electricity providers (a turn-of-the-century
Progressive era reform to prevent market manipulations and gouging) were
eliminated, with caps on utility bills to follow when companies recouped
expenses from failed plants. To recoup these losses, utilities were allowed
to charge artificially higher rates to customers, though these same customers
received electricity bills which itemized a phony "rebate" as part of the
agreement. (Why the public was supposed to subsidize huge corporations for
their bad investments was never explained.)
The theory behind the deregulation plan was that with multiple sellers and
distributors of electricity, a competitive marketplace would develop, to the
benefit of the consumers. It hasn't quite turned out that way: the large
capital required to enter the electricity market leads to an oligopoly. If
oligopolies secretly (and illegally) agree to limit supply of an inelastic
good such as electricity, they can reap windfall profits when prices remain
unrestricted. That is precisely what has happened. While utilities were
paying $35 per megawatt hour last year for electricity, the price recently
has reached up to $1,400.
The first warning signs came in April 2000, when electricity prices
mysteriously first began to skyrocket. In San Diego, where utilities recouped
losses early and thus were free of price constraints, bills suddenly tripled.
Mass public protests led to emergency rate caps and rebate checks to quell
the discontent. These doggy bones have proven to be too little, too late.
It would be easy to blame this all on Pete Wilson and his GOP administration,
except for one tiny problem: A.B. 1890 was passed in both houses of the state
legislature by a unanimous vote. This was despite protests from consumer
groups, who objected to the subsidy of failed power plants and warned of the
potential fiasco that has since erupted. The objections were ignored by both
sides of the aisle in a rush to serve the interests of big business.
The rush continues, even with Democrat Gray Davis in the governor's seat.
After he promised no blackouts, public bailouts, and rate increases, he has
since predictably caved in and all three are ready to follow. He now appears
to be on his way to signing up long-term contracts with electricity providers
at rates nearly double previous years to stop even more rampant theft.
While his actions are praised by mainstream media as supposed "crisis
management", more cynical observers note that he could've used the state of
emergency and seized electricity plants in California: even with ample
compensation of plant owners for this maneuver, it would be cheaper than the
strategy Davis has used instead. Thils would still be a benevolent strategy:
considering secret agreements to fix prices are against the law (the legal
definition, incidentally, of a conspiracy), prosecution of corporate
criminals and the confiscation of their plants would be a modest proposal.
Instead of doing this, Governor Davis has decided to negotiate with an
industry which, coincidentally, has given his campaign $239,000 over the last
three years. The list of compromised politicians doesn't peak at the
governor's mansion: Federal Energy Regulatory Commission Chairman James
Hoecker, a Clinton appointee, so far has baulked at placing rate caps on
electricity rates. He described those in favor of stronger regulation as
"charter members of the Flat Earth Society."
Meanwhile, George W., the self-proclaimed healer, has dismissed the crisis -
in a state he soundly lost during the 2000 campaign and likely will lose
again in four years - as a state problem, not a federal one. Nevertheless, he
has offered to charitably ease air pollution regulations on the state's power
plants. As Arnold would put it, "Heal on this."
The Bush connection to the fiasco runs even deeper. Just as Texas turned into
a near ground zero for the S&L loot (with some of the worst offenders being
the cronies of his father), the biggest beneficiaries of the California
energy mess come from the Lone Star state. Seven energy companies listed in a
lawsuit over the scandal have Houston headquarters. Most notable is Enron,
which has been a major backer of Dubya. Enron has given $820,000 in soft
money to the GOP and recently "donated" $100,000 toward the Bush inaugural.
Another $100,000 apiece were also given by it's two top executives, Jeffrey
Skilling and CEO Kenneth Lay. Lay himself has donated more than $350,000
directly to Bush campaigns since 1997, and was one of several Bush 'pioneers'
who helped raise more than a $100,000 dollars for his 2000 campaign. He was
reputed to be on Bush's short list for energy secretary. Fourth-quarter
revenues for Enron have risen 271% from a year earlier to $40.8 billion, and
earnings from wholesale energy business nearly tripled to $777 million as
well.
Not that the state's private utilities, the supposed "victims" of market
thievery, aren't a beneficiary from the mess themselves. While Pacific Gas
and Electricity is billions in debt, it's parent company, PG&E Corp., is
raking in dough, as it owns 30 power plants in 10 states. All told, PG&E
Corp. has revenues of at least $21 billion and total assets of nearly $34
billion. California-Edison is a similar shell corporation for Edison
International. Therefore, much of the immense "losses" these two companies
face go directly to themselves in another pocket.
How will this all end? Likely not well for Californians: besides the higher
rates and lost public funds, right-wing business interests are using the
power threat to push for easing up on zero-emission car requirements and
nuclear power plants.
Ultimately, Californians have no one to blame but themselves. In 1998,
consumer-rights organizations, backed most notably by Ralph Nader and Harvey
Rosenfield (the man who previously waged a successful drive against the
auto-insurance industry), pushed on the November ballot Proposition 9, a
voter initiative to stop the most objectionable part of the "deregulation"
agreement, the state's multi-billion dollar bailout of failed nuclear power
plants. Supporters insisted it was the first step in a voter fight to ensure
that changes in the electricity market be in public's interest.
Faced with a threat to their bottom line, the electric companies poured
millions in a fear-based campaign against the initiative, even hiring alleged
consumer advocate David Horowitz (not to be confused with the mouth-foaming
reactionary essayist of the same name) to bad-mouth Prop Nine.
The initiative failed overwhelmingly.
Two years later, the dire warnings of those behind the Proposition 9 campaign
have been proven prophetic. That's the real lesson of the California
electricity swindle: whenever a group of people buy into well-financed lies
and submit in cowardice to legalized theft, they get what they deserve.
Bolivians understood this, and acted wisely in reaction to an attempted
swindle, in 2000, of their water supply.
Considering the widespread lack of spine the public has shown in response to
larceny of the Oval Office by Team Bush, this truly is a bad omen, and not
just for sunny California.
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