Peace & Justice
Don't Put the Utilities Back in Charge
by David Bacon
BERKELEY, CA (1/21/01) - "Deregulation is dead," declares California Public Utilities Commissioner Carl Wood. 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 threaten bankruptcy and demand 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, because the utilities themselves have been transformed. 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 claims that inefficient, regulated, monopoly utilities were dragged into this new era, kicking and screaming, where they face unwelcome competition from the lean-and-mean companies of the future. Supposedly, these new competitors will out-perform the behemoths -- cutting costs to the bone and delivering products at cheaper prices.
But the mythology is just that. In fact, the utilities were the authors of deregulation. Their unregulated subsidiaries have become their own competition. And consumers have no choices in the marketplace as their bill triple and quadruple.
PG&E (the world's largest utility) and SoCal Edison co-wrote the state's deregulation law. The idea was originally proposed 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 blessing of free market advocates on the PUC and the federal energy commission, 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 USGen 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 USGen facilities alone represented an investment of $4.2 billion.
Deregulation has created a shrinking club of gigantic unregulated power generating companies nationwide. PG&E and SoCal Ed are both members of the club.
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 profitable. The unregulated subsidiaries also operate their newly-built plants without unions. With lower wages and less job security, they show little commitment to investing in a stable, high-paid and high-skilled workforce.
While buying and building 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 most 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.
Turning control of the system back over to the utilities, even in the old regulatory framework, ignores their obvious conflict of interest. Both corporations are much more interested today in the enormous profitsto be made from the power generated and sold by US Gen and Mission Energy, than in providing electrical service to California customers at reasonable rates.
In mid-January, the parent corporations of PG&E and SoCal Ed even won permission from the federal energy commission to get separate credit ratings for their unregulated subsidiaries. This allows USGen and Mission Energy to continue to purchase plants and operate them at high profits, charging the kind of prices to ratepayers in other states that are familiar now in California. Meanwhile the regulated utilities that provide service to California consumers slide further toward bankruptcy.
Taking advantage of the current crisis, some generators now even 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, Pasadena, Alameda, Santa Clara and a handful of other California utility districts, 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 and long-range planning.
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.
When the legislature voted to use $400 million from the general fund to buy electricity to resell to consumers, it took a small step, recognizing that the state can ensure that power is sold to the public at a reasonable cost. But the money that pays for the education of our children and other indispensible public services should only be risked if taxpayers and ratepayers end up controling the system. Forcing PG&E and SoCal Edison to put up hydroelectric facilities as collateral still leaves the utilities in control. California doesn't need a bailout that leaves them in charge.
The state has the ability to use its power of eminent domain to force the sale of the plants, as the governor has pointed out. Ratepayers paid the amortized cost of most of them years ago. If rates are to go up 9% to stave off the utilities' bankruptcy, that increase should be a down payment on a new public system that can provide dependable service at its true low cost.
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