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The emperor has no clothes! Four years ago, with electricity deregulation, California hailed the Free Market as its new emperor, and legislators and industry leaders swore he was dressed to the hilt. Now almost everyone sees that this emperor has no clothes. Far from improving California’s energy situation, deregulation has plunged us into a crisis that is likely to do serious damage before it is resolved. The first sign that something was seriously wrong came last summer, when San Diego Gas & Electric became the first of California’s three large utilities to complete the bailout of its stranded assets through a surcharge assessed to its customers. The utilities were constrained by law from raising rates while this charge was in effect. Once the utility was free from that constraint, customers found their bills had tripled! They raised a hue and cry: This was not the promise of deregulation! Competition was supposed to bring the price down. It was supposed to help the customer, but San Diego residents didn’t feel they were being helped at all. Suddenly we were all being told that this would be a statewide phenomenon once SCE and PG&E completed their transition periods. Cities like Los Angeles, Burbank and Pasadena, with municipally-owned utilities, are somewhat shielded from this impending gouging, in large part because the Union lobbied—vigorously and successfully—for the right of the munis to maintain control of their generation. Unlike the big three, who were required by AB 1890 to divest their generation, we retained the choice. In Burbank, LA and Pasadena, Local 18 fought to keep generation viable at a time when managers and hired consultants were arguing that deregulation would force us out of generation. We prevailed. Even when the DWP’s Valley Generating Station was mothballed, we insisted that the units be attended and maintained in a state of readiness. Now those “endangered” generating stations are great assets, making a ton of money by selling excess power to the grid. California’s energy crisis came to a head this winter. At one point, a stage three alert requiring rolling blackouts was only averted by an order from the Secretary of Energy to require out-of-state utilities to sell to California. Reduced hydro power from the Northwest due to low rainfall, increased demand from the state’s still-vibrant economy, a ten-fold increase in the price of natural gas, and manipulation of the market by the independent power producers have pushed the big three utilities to the brink of bankruptcy. Their shares, once the mainstay of conservative investors seeking a secure, reliable home for their money, are close to being declared “junk bonds.” As we go to press, it appears that only a massive bailout from the state can save these utilities. SCE has just announced substantial layoffs, and our heart goes out to our brothers and sisters in other IBEW locals who are the immediate victims of the deregulation debacle. Incidentally, the DWP’s immunity to the current crises only goes so far. We are certainly feeling the effect of high gas prices. And if SCE and PG&E go into bankruptcy, it is quite possible that we will not be paid for the electricity we’ve been selling to them, which would be a terrible blow and send a dark cloud over our vaunted economic success. WHAT CAN WE DO to fix this mess? The one-word answer is “reregulation.” The system wasn’t broken in 1996 and we should have left it alone. Instead, we turned over the most precious commodity of the modern age to a resurrected group of 19th century robber barons, the independent power producers. We had better take it back, and right away. We should abandon the failed PX and ISO system and return to state control and regulation. The state can and should use its power of eminent domain to take back the state’s generation facilities and secure a continuous supply of safe, reliable, cost-plus energy for California. This crisis should be a lesson to the many other states who are considering energy deregulation: It’s a bad idea…don’t do it. Regulation developed to protect the people from the robber barons, and we still need that protection. The free market may function perfectly well for consumer goods and “widgets,” but when it comes to something as vital as power, the free market emperor is buck naked!
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