What went wrong with deregulation?
One of the key goals of deregulation was to spur a competitive market for wholesale electricity. The theory was that in the deregulated environment, companies would compete to be more efficient suppliers of electricity and would thus reduce costs and prices in order to maximize their share of the market.
This theory proved to be nothing more than a mirage. A mere handful of companies purchased the utility power plants so competition never materialized. In fact, many of the companies entering the California market were perfectly positioned to enhance and abuse their market power. These unregulated companies withheld supplies in order to game the wholesale market and ramp up rates to unprecedented levels. They were able to do this even during times of the day and year when demand was very low. And to the extent that these same companies also had control over natural gas supplies and transport, they were able to manipulate both electric and gas rates.
What happened to California's regulated utilities?
Even though they sold many power plants, California's utilities retained significant generating capacity, including nuclear and hydroelectric facilities. And throughout much of the worst period of manipulated wholesale rates, our own utilities got in on the action and sold electrons on the wholesale market at the same exorbitant prices that they claim drove them into debt.
While it is true that they were forced to buy high-priced wholesale electricity, the utilities also benefited from the high prices because they were selling electrons into the same market! These profits were funneled up to the parent holding corporations and out of the state to fund unregulated activities elsewhere, while debts from power purchases were left here in California with the utilities to justify claims of bankruptcy and the need for more bailouts.
Meanwhile, California's largest privately owned utility, Pacific Gas and Electric Company, has proposed a reorganization plan to get itself out of its self-created bankruptcy that would transfer control of remaining valuable assets, including its hydroelectric system, to the unregulated parent, PGandE Corporation. The Utility Reform Network (TURN), along with many others, including the State Attorney General and the Public Utilities Commission (PUC), is challenging PGandE's reorganization plan as grossly unfair to Californians and unwarranted given the assets of PGandE Corporation.
What about the state's long-term contracts and "direct access"?
In response to the utilities' self-created cash crunch, the state began purchasing much of the energy used by utility customers. But the state over-bought and ended up with a lot of very high-priced power stretching over too many years. So the public is now faced with tens of billions of dollars in debt to pay off-above and beyond the bailouts that the utilities are trying to squeeze out of us.
It gets worse. Another key piece of deregulation was "direct access," the system by which all customers were supposed to be able to choose their electricity supplier. In September 2001, after months of mixed signals, the PUC formally ended direct access, which had been in trouble for months as energy retailers (like Green Mountain) dumped their California customers back on to the state and the utilities because of the high wholesale rates. By early summer 2001, the wholesale market was cooling and the PUC called for an end to direct access. But during the few months between the PUC's initial announcement and their September order formally closing the door on new contracts, many of the state's largest energy users signed new direct access contracts with non-utility suppliers to avoid paying the increasing rates for state-bought power.
With every direct access deal signed by a large user, California's small ratepayers are stuck with more of the burden of paying off the debt assumed by the state in purchasing power. While nearly 100% of small consumers are served by the utilities, almost 13% of large commercial and a whopping 33% of industrial ratepayers have direct access contracts with non-utility suppliers and are thus not contributing to paying down the public debt. These are the same large users who initially lobbied for deregulation! TURN is urging the state and the PUC to ensure that all customers share the burden of paying off the public debt. Since these large users were the original proponents of deregulation, it is only fair that they pay their fair share for cleaning up the mess.
What does TURN propose we do?
TURN has proposed a litany of policy changes to address the energy meltdown. We must hold the line on rate increases for small consumers and fight to bring rates back down to at least the levels that existed prior to deregulation. We also cannot allow another bailout of the utilities or more price gouging by the unregulated firms; throwing more money at these companies does nothing to fix the problems with our state's energy system. We need more democratically accountable programs with independent oversight to promote efficiency, conservation and renewable energy. The cheapest and cleanest energy supplies come from reducing demand and decreasing reliance on fossil fuels. Finally, we need to make it easier for local governments to establish public power districts-through aggregation and the municipalization of utility services.
TURN will continue to push for sensible energy policies, including a return to reasonable and stable rates, support for increased development of renewable energy and enhanced democratic control over our energy systems and policies. But we need your help. Please contact us and ask about the TURN Action Network so that you can get more involved in shaping the decisions that control our energy systems. Call Community Organizers Dwight Cocke or Graham Brownstein at (415) 929-8876, ext. 315 or 308.
Copyright Mendocino Environmental Center 2002
Permission granted to excerpt or use this article if source is cited