Calif. Power Crisis & "Free Market"

Dayne Goodwin dayneg at
Thu Jan 18 17:58:28 MST 2001

From: portsideMod at

By David Bacon

BERKELEY, CA  (1/13/01) - California's experiment with deregulating
electricity is on its last legs.  "Deregulation is dead," declares Public
Utilities Commissioner Carl Wood.  And from the governor to the PUC to the
legislature, almost everyone expects the state's electrical system to be
regulated once again.

Meanwhile, the utilities stand with their hands out, threatening bankruptcy
and demanding bailouts.  Heightening the atmosphere of crisis, they lay off
thousands of workers, just when ratepayers most need a skilled workforce to
keep power plants running, and maintain a transmission and distribution
system capable of surviving storms and blackouts.

In a crisis atmosphere, it's tempting to think the state can simply return
to the past.  But it can't.  And the reason is the change in the utilities
themselves.  Despite their public protestations, PG&E and Southern
California Edison are no longer primarily interested in providing
dependable service to ratepayers at a reasonable price.

The mythology of deregulation tells us that the inefficient, regulated,
monopoly utilities were dragged into this new era, kicking and screaming.
They would be faced, goes the story, with unwelcome competition from the
lean and mean companies of the future.  These new competitors would
out-perform the behemoths -- cutting costs to the bone and delivering
products at cheaper prices.  Consumers would rejoice.

But the mythology was just that.  In fact, the utilities were the authors
of deregulation.  Their unregulated subsidiaries have become their own

PG&E (the world's largest utility) and SoCal Edison co-wrote the state's
law which deregulated the industry.  The original proposal was written in
1994 by free-market appointees to the PUC.  But it was immediately
supported by a coalition between PG&E and its largest industrial customers,
called Californians for Competitive Electricity, which included the
California League of Food Processors, the California Manufacturers
Association, the California Large Energy Consumers Association, and the
California Independent Energy Producers Association.

With the blessings of the PUC's free marketeers, and those on the federal
commission as well, the utilities were allowed to set up unregulated
subsidiaries in the early 1980s.  Today, PG&E's subsidiary, US Generating
Co., and SoCal Ed's Mission Energy, operate many unregulated plants out of
state, bringing in huge profits.  By 1995 the U.S. Generating Co. was
already operating 22 power stations from coast to coast, with a combined
capacity of 4800 megawatts. By 1997, USGen owned most of the power
plants in Massachusetts.

The profits made from California ratepayers paid for the investments in
those plants.  Thirteen US Gen facilities alone represented an investment
of $4.2 billion.  And because USGen is unregulated, it operates numerous
coal-fired plants (illegal in California), which pollute the atmosphere
more than those using any other fuel.  But because coal-fired plants are
the cheapest to operate, except for hydroelectric facilities, they are very

The unregulated subsidiaries are also non-union, with little incentive to
invest in a stable, high-paid and high-skilled workforce.

While buying plants elsewhere, PG&E stopped building power plants in
California in 1993, and even bought up five plants belonging to independent
power producers and shut them down.  The deregulation bill, AB 1890,
required the selloff of the utilities' remaining California generation
plants. The plants' new owners, with no regulatory cap on prices, raised
them astronomically on power which the utilities were required to buy.

Deregulation has created a shrinking club of gigantic unregulated power
generating companies nationwide.  PG&E and SoCal Ed are both members of the

Turning control of the system back over to them, even in the old regulatory
framework, ignores their obvious conflict of interest.  Both utilities are
much more interested today in the fate of their unregulated subsidiaries,
and the enormous profits to be made from the power they generate, than in
providing electrical service to California customers at reasonable rates.
Some generators are even using the crisis to call for building
high-pollution, high-profit plants in the state once again, overturning two
decades of hardwon environmental protections.

The only future for ensuring an adequate, environmentally-responsible power
supply, and controling its cost, is if the state itself takes over the
system.  In Los Angeles, Sacramento, and a handful of other California
cities, prices are stable, and have been for years. These cities own their
electrical systems. They offer conservation programs and invest in cleaner
power sources. Los Angeles generates so much power it's been able to sell
excess during the current crisis, keeping rates there low.

The experience of Los Angeles and Sacramento demonstrate that electriciy
can be efficiently provided by the public sector, where the pursuit of
profit doesn't override rational decision-making.

The state really has no other option which can ensure cheap dependable
power other than running the system itself.  PUC Commissioners Wood and
Bilas have both suggested looking at public ownership of some section of
the utility industry through municipalization or state authority.  Even the
governor has hinted at it.

California doesn't need a bailout of the big utilities that leaves them in
charge.  If rates are to go up 9% to stave off their bankruptcy, that
increase should be a down payment on a new public system that can provide
dependable service at its true low cost.
david bacon - labornet email            david bacon
internet:       dbacon at      1631 channing way
phone:          510.549.0291            berkeley, ca  94703
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