Among the really bad ideas whose time never should have come in the first place, California utility de-regulation ranks right up there with anything you could dream up. Utility de-regulation in California has been both an on-going drag on the state’s economy and a ruinous expense for both utilities and energy customers.

Utility de-regulation was the “brilliant” idea—strongly opposed by organized labor, led by the statewide IBEW—that was supposed to ensure that free market forces would bring about “healthy” competition in energy pricing and lower rates for consumers. Under AB 1890, the Pete Wilson administration expanded a PUC decision to de-regulate private-utility generated electricity. State-regulated, cost-based, reliable utility service was replaced with de-regulated markets.

It was an unmitigated disaster, one which we are still paying through the nose for, and one which did nothing to help Californians, but everything to line the already-bulging pockets of out-of-state energy pirates—many of which were then (and still are) snugly in bed with the Bush administration and its corporate cronies in Washington and Houston.

Riding to the Rescue?

State Senator Joe Dunn (D-Santa Ana) has recently introduced SB 888, which would re-regulate the state private utilities, making them once again responsible for building new power plants and transmission lines. As Senator Dunn says bluntly, “when it comes to de-regulation, we’re not mending it, we’re ending it.”

Bravo, Senator Dunn!

Courtesy of Art Carter, our legislative advocate in Sacramento, let’s compare what de-regulation has brought upon us with the provisions of SB 888:

• De-regulation eliminated the utility “obligation to serve.” Until de-regulation, each utility was obligated to ensure that it had enough generation to serve all the customers, all the time. Under de-regulation, nobody had any obligation to plan or provide adequate energy supply at any time. Utility planning was replaced by the “free market”. De-reg supporters claimed that “the market” would provide an adequate power supply.
• SB 888 would re-establish the regulatory compact (commitment). Utilities would again be obligated to serve all customers, all the time. Utilities would be able to recover their reasonable costs for serving their customers.
• De-regulation pushed utilities to sell generating plants. Investor-owned utilities sold most of their generation that had been dedicated to serving customers to merchant generators. Merchant generators sold wholesale electricity based on market (not equitable) prices. These generators had no obligation to serve customers. Competition between generators was supposed to lower prices. Supposed to.
• Further, De-regulation allowed customers to purchase electricity directly from suppliers. Until de-reg, customers bought all their electricity from their utility. “Direct access” meant that customers could bypass utilities and deal directly with “energy service providers” for retail electricity supply.
• SB 888 would repeal “direct access.” It is impossible for utilities to carry out an obligation to serve if they cannot adequately determine their own future customer base. New electricity generation, either under contract or owned by utilities, requires long-term investment. If customers can choose to leave the utility when marker prices are low, and return when they are high, new generation cannot be financed by utilities or independent generators.
• De-regulation created both the Independent System Operator (ISO) and the Power Exchange (PX). The ISO became the operator of the utility transmission systems. Instead of operating the transmission system to serve customers who had paid (through rates) for its construction, the ISO ran the transmission system to facilitate “the market.” De-reg required utilities to use the PX as the vehicle for “competition” between energy generators. Utilities could buy their power only from the PX. And here’s the kicker: generators were not required to sell to the PX; they could generate electricity or not do so—strictly at their option.
• SB 888 would create long-term energy stability. The economy of California cannot afford to be subject to the periodic, often-capricious rise and fall of electric markets (pricing). Electricity is simply too important, and the potential—and real!—impact on the state is too great. Repealing de-regulation means that the State of California, by itself one of the world’s half-dozen largest economies, can ensure badly needed energy stability by regulating its power industry.
• De-regulation meant that utility rates were frozen. Rates were fixed at levels above the cost of generation. The extra revenue was supposed to enable utilities to amortize their generation investments (along with the proceeds from selling generation) by the end of 2001. It was assumed that competition would keep the price of generation in the PX close to the cost of generation.
• SB 888 would ensure that customers benefit from refunds from generators. If California succeeds in recovering some of the billions of dollars lost during the energy crisis, customers, not utility holding companies, should receive those refunds. Further, SB 888 would repeal and repudiate energy de-regulation. With the passage of AB 1890 in 1996, California “led” the nation into the murky and ultimately disastrous realm of energy de-regulation. SB 888 would help lead the country back to a stable electricity industry.

How California “Benefited” From De-Regulation

Electricity de-regulation was the most expensive, ill-conceived, ruinous public-policy mistake in California history, and quite likely one of the greatest “whoppers” in the 227 years that the United States has been in existence!

Here’s just a re-cap of the disaster:

Billions of dollars in costs. In 2000 and 2001, Californians spent $20 billion each year more for electricity than in 1999. To limit the hemorrhaging, California signed $43 billion in long-term supply contracts. Utility ratepayers—including millions of working people and families, the poor, elderly and others on fixed incomes—will be paying for the massive 2000-2001 debts and these obscenely overpriced energy contracts for years to come. Bundled utility customers carry an extra burden: they are paying higher rates so direct access customers can pay their share of this obligation over time.

Blackouts. During 2001, mostly during the hot, humid Summer months, California experienced periods of blackouts and many days of “voluntary” interruptions. Many businesses lost millions of dollars—with more than a few being forced to close. Not in the previous 40 years, had the state experienced such sweeping blackouts and inconvenience solely from inadequate energy supply.

Utility financial disaster. Two major California companies (the two largest private utilities in the country), Pacific Gas & Electric and Southern California Edison, incurred billions of dollars of debt and lost their good names and reputations in the financial community. The long-held “agreement” that utilities would spend what was needed to provide enough energy to their customers, in exchange for assurances that they could recover their reasonable costs, was completely shattered.

Employee layoffs. De-regulation stripped the utilities and their customers (commercial and individual) of a very valuable asset: thousands of their most experienced and knowledgeable employees. Decades of “institutional memory” were lost and unlikely to be retrieved.

Looking Ahead

SB 888 is one of the most important and timely bills introduced in recent memory. It deserves not only the support of every IBEW member and family, but that of organized labor, consumer groups—and every state legislator whom we have supported over the years! With some 13% of the demand for electricity throughout most of California (excluding DWP’s service territory) now being served by companies other than the utilities themselves, it is imperative that SB 888 is enacted so that customers will come back to their utilities when their outside contracts are up. With passage of SB 888, as Senator Dunn says, “there is no longer need for direct access.”

He’s right. This is critical legislation and we will track it very closely as it proceeds through the State Legislature in the coming weeks and months.

10th District City Council Race
Is Organized Labor’s Top Priority

On Tuesday, May 20, there will be a crucially important runoff race to elect a new City Council member in the 10th District (largely South Central Los Angeles). Local 18’s candidate, and the choice of organized labor is Martin Ludlow. It is imperative that we elect Brother Ludlow to the Council on the 20th.

Organized labor needs all the political support it can muster (and help elect), especially in this era of local and state fiscal belt-tightening, and the on-going hostility to our agenda clearly emanating from Washington, D.C. On the Los Angeles City Council, we need strong, supportive voices who understand—and care about, and will fight for—the needs and goals of working people.

Martin Ludlow is such a man, and he richly deserves the vote and all-out campaign support of every Local 18 member and family. He has a proven record of service to, and support of, the union movement. Ludlow was a staff member for the Los Angeles County Federation of Labor, so he has great feeling for the workings of organized labor and understanding of our priorities. He also was a field representative for then-State Assembly Speaker Antonio Villaraigosa, one of organized labor’s staunchest legislative allies in recent memory. This experience gave Ludlow insight into the political process, most notably about how to translate our ideas and proposals into successful, enacted legislation.

Brother Martin Ludlow will be a strong friend and voice for working people and families in Los Angeles. His election is the top priority for organized labor in Los Angeles between now and Tuesday, May 20.

We will, of course, contact every Local 18 brother, sister and family living in the 10th District in order to make sure that you not only vote for Martin Ludlow, but get your friends and neighbors to do so, too. Brother Ludlow’s opponent represents the continuation of the old, tired politics that has dominated the district for decades. It is far past the time for a real change! Voting is only one thing, however; there is more to be done.

Organized labor can really influence this race: the special election on May 20 will likely draw a very low turnout (that is unfortunate, but realistic). But organized labor, led by the County Fed, can make all the difference in this contest because we supply money and volunteers, people to help with phone banking, precinct walking and get-out-the-vote activities on election day. The good news is that Ludlow’s opponent does not have this organized and experienced asset working for him. It is vital that interested and concerned Local 18 members turn out in the days leading up to the 20th, and on election day, to do whatever you can to help Brother Martin Ludlow win. There are plenty of things you can do, and we need your help! Please call Barry Poole at the Union office (213/387-8274, ext.108) to volunteer your time for this critical political campaign. It’s that important!

Thank you.

In unity,

BRIAN D’ARCY, Business Manager