some bkgd.on Calif. power crisis

Dayne Goodwin dayneg at
Sat Jan 13 01:15:03 MST 2001

This article was written by members of the Foundation for Taxpayers and
Consumer Rights, whose webpage can be found at
and is great for history and analysis of the Ca energy crisis.

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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