SAN FRANCISCO — The Los Angeles Times ran a cartoon that graphically shows the situation California's consumers find ourselves in today: two big pulley wheels sucking in a consumer. The top wheel says, "power suppliers" and the bottom wheel, "utilities". The consumer's arm is being dragged between the wheels and below the wheels it says, "rolling blackouts".
Recent revelations add to consumers' rising anger: northern California's largest utility, Pacific Gas and Electric (PG&E), gave $4 billion to its national parent company last year at the same time it told the public it was facing bankruptcy. To make matters worse, top executives cashed their stock options for big profits.
"It probably wasn't illegal. But it doesn't pass the straight-face test", said Michael Shames, executive director of the Utility Consumers Action Network.
"If they hadn't transferred the wealth, they wouldn't need the bailout", added Nettie Hoge, executive director of the Utility Reform Network, on the audit revealing that PG&E funnelled money to its parent company even as the utility sank deeper into debt.
The state legislature has voted to give the utilities a $10 billion bailout (estimated to rise to $20 billion over 10 years). Ordinary taxpayers will pay higher prices to pay off the PG&E's debt.
Capitalism runs amok
If there is ever an example of why the "free market" system should be replaced by a government-organised planned economy, it is the ongoing electricity "crisis" in the world's sixth largest economy. Many Californians are wondering if the state has joined the ranks of the Third World with our daily rolling blackouts.
In truth, this is simply an example of how the "free market" system works without regulations to "protect" working people. It is how the capitalist system works: manufacturing shortages (lack of supply) to jack up prices (to meet demand). The utilities and power suppliers are using their monopoly control of the market to force working people to pay more. The capitalist politicians who imposed the deregulation of the industry in 1996 made sure that consumers would be caught between two big wheels of corporate greed.
How was this possible? Since electricity can't be stored like other commodities, the energy companies under deregulation have no incentive to build more power plants and to have enough capacity for basic needs and emergencies. Less capacity means shortages are inevitable, which means higher prices. That's why there is a shortage of power plants. It is why California's utilities haven't built a single new power plant in 10 years. They planned on deregulation, knowing a lack of facilities would cause a shortage and would be the basis to charge super high prices.
In contrast, under the government-run regulation of the past, the norm was to have 15% excess capacity at all times. In exchange for guaranteed capacity, the state made sure the utilities received steady profits.
"There's a very good reason this industry has been regulated for 100 years", said Dr. Frank Wolak, an economics professor at Stanford University. It ensured electricity for the public and strong profits for the investors.
Why change the system? Corporate greed. The level of profits under deregulation can be three or four times higher.
PG&E and its southern California brother, Southern California Edison, agreed to a period of fixed prices since they counted on the state to bail them out when prices went up. Under US law, it is legal for parent companies to separate their finances from subsidiaries. PG&E national began buying up power plants in other states after the 1996 deregulation with funds created by the new law. To add insult to injury, PG&E national is owed money by its own subsidiary —
more than half of the new $7 billion debt!
The state's Democrat Governor Gray Davis and Democrat-controlled legislature are part of the utility rip off. They and the Republicans received big campaign contributions from the utilities. Their hot air against the utilities is just for show. The politicians, not surprisingly, have responded to the threat of bankruptcy by agreeing to a $10 billion bailout through a state bond to pay the utilities nearly $12 billion debt. The state government will purchase electricity on behalf of the utilities at prices up to $70 per megawatt hour. The contracts are for six months up to 10 years. Only a year ago the wholesale price was $40 per megawatt hour. In recent weeks the daily spot market price has been as high as $2400!
At the same time, natural gas prices have quadrupled over the past year. Natural gas runs most power plants and homes. My recent gas and electricity bill, for example, has gone from $70 in October to $230 in February — most of that from higher gas prices.
What we have in California is capitalism run amok.
A case for public ownership
Neither re-regulation (as some call for) nor deregulation is the answer. The former old system gives private investors a steady double-digit profit. The latter means triple-digit plus profits
There is only one viable solution to stop the price gouging: public ownership of the energy industry, so that private profits are taken out of the equation. All profits could be re-invested into the basic infrastructure (including living wages for utility workers) to lower rates and begin to use alternative methods of energy such as solar and wind. To counter charges of government corruption, a publicly elected board with representatives from labour, environment and the community would oversee the public property.
Is this likely to happen soon? No. But it is the only viable long-term solution to shortages and gouging prices.
Republican President George W. Bush is also using the crisis in California to push to weaken environmental standards and seek to do more oil and gas drilling in preserves in Alaska and other off limit areas in the country. Bush has criticised California for having too strict environmental standards.
But as one San Jose resident wrote to the editor of the San Jose Mercury News: "I have read too many letters recently blaming the energy crisis on environmentalists. That is like blaming the canary in the mineshaft for warning us of impending danger. We should be all grateful for the role environmentalists are playing. History is rife with examples of failed civilizations that charged ahead in the devastation of their environments only to face complete collapse."
So far besides small environmental groups and supporters of the Green Party, there are no political leaders standing up to the state legislature to lead a fight for public ownership of the utilities. The labour union leaders that back Davis and the Democrats in the legislature do not support public ownership. They are only pressing for some form of re-regulation of the industry.
Since the problem is the system itself, the labour leaderships reject calling for public ownership. The establishment of not-for-profit utilities and government control of all energy production means challenging the capitalist system itself. It goes against the policies of the labour officialdom that pursue economic partnerships with the employers.
The fact that discussions include those calling for public utilities is a step forward. It indicates the possibilities for new coalitions and alliances in the future.
BY MALIK MIAH