Socialist Action /June 2001
Power Companies Rake in $$$ from Energy
Crisis
By BARRY SHEPPARD
California's power "crisis" would be
better named "The Great Rip-off." The power companies, with the
connivance of the politicians, have raked in tens of billions as a result
of this carefully engineered "crisis," and are demanding more.
So blatant has the scam become that even a few
state Democrats are making noises about the need to take over the power
plants and set up a public power utility.
It all began with deregulation of the power industry
in 1996. The two major power companies in the state, Pacific Gas and Electric
(PG&E) and Southern California Edison (SCE) helped write the deregulation
bill that was passed unanimously by both Democrats and Republicans in the
California legislature. The rationale at the time was the "free market"
swindle being promoted by capitalist governments around the world.
In this fairytale, ending regulation would introduce
competition as tens of new power companies would spring up. Nothing of the
sort happened. Some new big companies did become power producers, in addition
to PG&E and Edison, but far from introducing a "free market,"
they formed a cartel to control prices.
This is how the scam worked: According to the deregulation
bill, PG&E and SCE would sell half of their power plants. PG&E and
SCE then set up two companies each, one which owned the other half of the
power plants, and one which bought power from the producers' cartel and
sold it to consumers via the power transmission lines. PG&E Corp. owns
the power plants, while PG&E Co. distributes the power.
PG&E Corp. wholly owns PG&E Co. The same
relations hold between International Edison and SCE. One regulation that
was done away with required the old PG&E and SCE to maintain enough
power-producing capacity so that there would always be considerably more
capacity than demand projections. This change freed PG&E Corp. and International
Edison to shut down older, less efficient plants, and allowed them not to
build new plants, so that potential supply was restricted.
Deregulation also introduced some new regulations
at the insistence of the power companies. One was to fix the prices the
distributors would charge consumers well above the costs of producing electricity.
Until 2000, these super-profits, estimated by consumer groups to be about
$20 billion, were turned over to their parent companies. PG&E Corp.
and International Edison used these funds to pay off bad debts, including
for their nuclear power fiascos, and to buy up new power plants across the
U.S. and even some abroad.
As the summer of 2000 approached, the producers'
cartel, aware that demand was going to outrun the supply, which they had
kept low, saw a chance to make a real killing. Pleading the "laws of
the market," the cartel started jacking up the prices for electricity
they sold to PG&E Co. and SCE.
I work in a small steam-power plant that sells
electricity to PG&E. As a result I was able to see how these wholesale
prices soared. Each day, the cartel of big producers would meet and bid
on the prices they would charge the distributors. And the highest bid would
be what they all would charge!
My small plant was not part of the cartel, but
would be sent what the prices were to be for the next day over the Internet.
The prices would vary from hour to hour for the next day, depending on projected
demand.
Early in 2000, the price for a megawatt-hour was
about $30. In the summer it started to go up-$50, $75, $150, $300, and higher.
When demand slacked as cooler weather came in the fall, prices were supposed
to go down, but they went up higher and higher!
In December and January of this year, prices throughout
the day averaged from $300 to $700, with some hours much higher. For some
hours in January, the price was $2500-more than 9000 percent higher than
they were a year before.
A factor in keeping the prices high was that about
25 percent of productive capacity was shut down throughout this period,
ostensibly for "maintenance."
PG&E Co. and SCE were still bound by the regulation
they had insisted on that froze the prices they could charge consumers.
While this had previously worked to rake in super-profits, now that the
wholesale prices had gone through the roof, PG&E and SCE went into debt
and are continuing to go into debt. But we have to keep in mind that this
is a bookkeeping sleight of hand, as their parent companies have been raking
in the dough like mad selling power to their wholly owned distributors.
The response of the state government, headed by
Democratic Gov. Gray Davis, has been to spend billions in buying power from
the cartel and giving it away to the distributors so that the lights don't
go out. PG&E Co. and SCE promptly turned over billions to their parent
companies.
Davis also entered negotiations with PG&E and
SCE to buy some of their power lines at prices billions of dollars higher
than what they were worth, as another way to bail out the distributors.
But PG&E Co. declared bankruptcy anyway. Before
doing this, PG&E Corp.-awash in tens of billions-legally maneuvered
to protect its cash and other assets in the event that its subsidiary filed
for bankruptcy.
International Edison did the same in relation to
SCE. So far, SCE hasn't declared bankruptcy, but has tentatively and graciously
agreed to allow Davis to buy part of their power lines for two to three
times their worth, in the hope that this will enable SCE not to go bankrupt.
When PG&E declared bankruptcy, state Senate
leader John Burton and a few other Democrats raised the idea of taking over
the power companies and building a public utility. They noted that since
January the state had given PG&E over $4 billion-about $1 billion more
than what PG&E sold half its plants for. Each day, the state is now
giving away $58 million to these gangsters to keep the electricity flowing.
What do the big power companies want-in addition
to billions more in state funds? They want to raise rates to pass on the
artificially high wholesale prices. The actual costs of producing electricity
have not risen, and are well below the $30 a megawatt-hour wholesale prices
were at last year. They also want to get rid of or gut environmental protection
rules.
The arrogance, greed and calculated attack on the
public by the big power companies are astounding. The whole scam, from 1996
to the present, underlines the necessity of the state taking over all the
power companies, producers and distributors, and establishing a public power
utility. Such a public utility should be run by an elected public board,
with all its decisions, transactions, and books open to public scrutiny.
But don't put any faith in capitalist politicians
like Burton, who sat back and allowed the whole situation develop, to accomplish
this obvious solution. What is needed is a powerful mass movement to take
over these rapacious companies. Given the likely affect on workers of huge
rate increases and depletion of state funds that could be used to better
schools, etc. the labor movement should become the spearhead of such a movement.
So far, the union leaders are conspicuous by their lack of action.
Socialist Action /June 2001 |