Who Turned Out the Lights in California?

Free market madness and the energy crisis

Revolutionary Worker #1089, February 4, 2001, posted at http://rwor.org

San Francisco, January 2001. Here in California--the capitol of capitalistic high tech, it's gotten so that we don't know when the power is going to flick off without warning. If you write on a computer, like I do, you save your work early and often. If you work in an office building, you try not to get stuck in a suddenly stopped elevator, because it could be hours. And if you are one of the millions of proletarians living in this biggest state in the world's richest country during its longest economic "boom" in decades you wonder whether you are going to be able to put food on the table and pay rent if your utility bill doubles--or triples.

California is in the midst of a major power crisis. It's a crisis of the supply and price of electric and natural gas power. But underneath it all it's a battle within the monopoly capitalist class over how freely the massive energy conglomerates are going to be allowed to operate, which ones are going to dominate California's power market, and how much more they're going to rob the people.

The system is holding the masses of people hostage--it won't deliver the necessities of life unless it's allowed to rob them even more ruthlessly. And for the people, this poses deep questions about how the resources of this society are controlled.

This crisis, which has been growing for a year, escalated sharply over the past several weeks. Much of California has been in a near-continuous "stage 3" power alert. This happens when the supply of electric power is barely enough to cover demand. To prevent a meltdown of the power grid, electricity has been cut off to different areas at different times in a series of "rolling blackouts." These have left hundreds of thousands of people and many businesses without power for hours at a time.

Skyrocketing wholesale prices for natural gas and electricity have put California's big utility corporations--Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric--in a squeeze. They're now paying anywhere from 12 to 30 times as much for electricity and natural gas as last year. So now these giant corporations are claiming they're $11 billion in debt and that they'll go bankrupt unless they get an immediate 26% rate hike, and even bigger hikes in the future. In early January the state's Public Utilities Commission gave them an emergency 9% electricity rate increase.

This 9% electricity rate increase plus a 60% increase in the price of natural gas, which is heavily used during the colder winter months, have meant that people are now getting utility bills two, even three, times higher than a year ago.

Some people are being forced to double up in apartments so they can afford to have power. One landlord told the San Francisco Chronicle, "Many of our tenants have been used to paying $20 a month, and all of a sudden their bills are $40 to $50 a month. For them, 20 bucks is a lot of money." Proletarians have seen their bills jump from $50 a month to $120; one middle class technical consultant told the Chronicle that "seeing my bill for $400 was like getting kidney-punched."

The power crisis is sending out shocks in the working class: One Miller Brewing plant laid off 200 of its 750 workers because of power outages. The West Coast's largest steel mill has sent all its 1,000 workers home due to the outages. Small businesses, like restaurants, are being hit hard by outages and rising costs.

California agriculture has also been slammed by the power crisis. The New York Times (1/21/01) reports that since mid-December, the Land O'Lakes factory in Tulare, California--the U.S.'s largest milk-processing plant--had its power cut off 17 times, once for as long as 16 hours. Because cows have to be milked by electric-powered milking machines twice a day, every day, and because milk easily spoils unless processed quickly, milk production is a 24-hour-a-day, seven-day-a-week operation that depends on a steady power supply. So these power outages have led to big disruptions and uncounted thousands of gallons of milk being flushed down the drain. To conserve its power Land O'Lakes has shut down one production unit and laid off 125 workers. The unemployment rate in Tulare County, one of California's poorest, already stood at 14%. These blackouts and sharply rising power costs threaten smaller farmers with ruin and big jumps in food prices for everyone--one cheese company reported that its utility bills are now 475 percent higher than a year ago.

More turmoil and assaults on the people loom. The possibility that California's utilities may go bankrupt has led natural gas companies to threaten to cut off their supplies unless the utilities pay up front. Such a cutoff, which has been blocked by the federal government until February 7, would mean that gas for heat, hot water, and cooking could be shut off during the coldest months of the year.

What's Behind the Power Crisis

In 1996 California deregulated its wholesale energy market. When this scheme was put into place, all the major players--government officials, Democratic and Republican Party politicians, California's utility companies, the out-of-state energy corporations, and the media--were all onboard. These pillars of the system all promised that the wonders of the capitalist market would bring California lower energy bills and more power.

But now that the energy shock is rolling through California, leaving disruption and suffering in its wake, these same officials, corporate big shots, and media commentators are busy trying to explain the crisis and assign blame--to everyone but themselves and their system.

California's Governor Gray Davis blames the previous governor for deregulation--even though his own party supported it--along with the federal government for not giving California enough help. The Bush Administration blames California for having too many regulations--especially environmental regulations--that slowed the building of new power plants. California's utility monopolies blame out-of-state energy suppliers for cornering the power market and driving up prices. Those same energy suppliers blame California for only deregulating the wholesale energy market, but not retail prices. Some media pundits argue that the crisis shows that the capitalist market must be allowed to operate unfettered. Others claim the problem is just stupidity--that California officials didn't anticipate the state's booming economy and rapidly growing population.

But running through this whole crisis are the basic laws and operation of monopoly capitalism/imperialism: the ruthless, anarchic competition between contending billionaire financial groups to maximize profits, cut down rivals, and gain a stranglehold on resources and markets, with the government--at the federal and state levels--serving as facilitator for this robbery.

Origins of California's Electric Shock

Since the 1930s, California, like most states, has regulated its power industry. The utility companies were given a monopoly and a steady rate of return while the California state institutions oversaw their operation and set rates. But in the world of leaner, meaner capitalist competition, this was creating "inefficiencies." By the early 1990s, the cost of power for corporate and business users in California was about 45% higher than the nationwide average, and businesses were threatening to leave the state. At the same time, other energy conglomerates were demanding to be let into California's power market.

So California embarked upon its deregulation program. California's utilities sold off much of their power generating facilities to "independent" power companies who would in turn sell power back to the utilities on the open market. According to the myth of deregulation, such capitalist competition was supposedly more efficient: unregulated power generators were supposed to operate more efficiently, the most efficient would make the most profit, and these higher rates of return would encourage investment in new power plants. Customers would be able to choose who to buy electricity from. All this was supposedly going to lower energy prices and ensure a growing supply. Such were the promised wonders of the market.

One element of the crisis is that no new power plants have been built in California for over a decade. Why not? The New York Times editorialized (1/27/01) "Just a few years ago, the state's economy was booming and there was a modest surplus in electricity... Virtually no one in the state foresaw the spectacular economic growth that occurred in the late 1990's, bringing with it an insatiable thirst for more power. Few sensed the urgency of building new power plants." Basically true--but why? Because the anarchy of capitalist production, and its booms and busts, its surges and declines, all make rational social planning impossible--even for the most basic necessities!

Allowing the market to rule means allowing profit to rule. And another reason that California's utilities and other energy corporations didn't build new plants had nothing to do with too many environmental regulations. It had to do with capitalist concerns that their rate of profit wouldn't be high enough. The Director of the University of California Energy Institute told the New York Times (1/22/01): "The real reason investors didn't build plants in the 1990's is that for a long time, no one knew what the rules were going to be." Speaking of the non-regulated energy corporations, the Times commented, "These companies build power plants only where it is most profitable--and not necessarily where they are most needed." (1/23/01)

In 1995 Southern California Edison and other firms combined to kill the Public Utilities Commission's plan to grant contracts for 1.4 million megawatts of power to smaller energy producers, focusing mainly on generating electricity from the wind, geothermal sources and the sun--all clean, renewable sources. But Edison and company argued that they could buy power more cheaply from other sources and that they wouldn't need new power plants until 2005.

Meanwhile, PG&E Corporation, the parent of California's Pacific Gas & Electric Company, was investing billions in power plants and transmission facilities in other states and countries. For instance, it spend $1.6 billion to acquire power plants in New England, a half billion for a power plant in Killingly, Connecticut, and is planning to buy power capacity in Mississippi, Philadelphia and Indianapolis. It is estimated that PG&E Corp. has invested at least $13.9 billion in these and other power ventures across the country. This too is following the logic of the capitalist marketplace--chasing the highest rates of return, no matter where, no matter the impact on the people.

While the California subsidiary is claiming bankruptcy, its parent corporation posted record 2000 profits of $753 million, a 40 percent increase from 1999. And in a secret meeting on January 12 with PG&E Corp., the Federal Energy Regulatory Commission gave PG&E Corp. the right to be exempt from any claims against its subsidiary California's PG&E Company. So the parent's $21 billion in revenues, $34 billion in assets and hundreds of millions in profits--much of which have been derived from the operations of its subsidiary in California--won't be touched to pay for the subsidiary's debts. That burden will be shoved on the people instead!

The Power Monopolies Power Play

Another facet of California's energy crisis is a move by some of the country's biggest energy monopolies to hold back supplies of both electricity and natural gas to California in order to create artificial shortages and drive prices sky-high. These conglomerates, such as Enron Corporation, Duke Energy of Charlotte, North Carolina, Dynergy and Reliant Energy of Houston generate 20% of the electricity in the U.S., and 40% of the electricity in California. El Paso Natural Gas supplies much of the natural gas to California.

For the past year there have been unusual shortages of both electricity and natural gas. As a result, wholesale prices paid by California utilities for electricity have skyrocketed from an average of 2.5 cents to 30 cents per kilowatt hour. In December, electricity prices rose to $1,500 per megawatt, compared with $26 per megawatt last April! Wholesale prices for natural gas have jumped from last year's $2.50 per million BTU average to as high as $73 per million BTUs-- a 3,000 percent increase!

The electricity shortages have been caused by an unusually high number of plant shutdowns, taking electricity capacity off line during times of peak need. The power companies claim this is just routine maintenance, but studies have shown that the most likely scenario is deliberate withholding of power to drive up the prices.

One study concluded that the excuses given by the power generators for the shutdowns--including equipment troubles and environmental regulations--could not account for the sharp drop in electricity production.

In "Price Spike Tsunami--How Market Power Soaked California," in the journal Public Utilities Fortnightly (1/1/2000), author Robert McCullough also argues that the energy monopolies are manipulating power supplies to drive up prices.

He argues that while demand for energy has risen in California, it was not extraordinarily high and there were adequate resources in the West and within California to meet this demand. Discussing the summer of 2000, when California also suffered rolling blackouts, he writes, "One can readily see how ordinary the summer was in terms of load, fuel prices, and hydro generation." "The basic mechanics of California power markets resembles a Ouija board," he writes, "a small number of players maneuvering prices in a fashion difficult even for close observers to understand....The bottom line is straight forward --the California market was characterized by large enduring deviations from traditional utility practice. Generators did not generate. Peakers did not peak. Emergencies appeared to lack solid justification. All of the evidence is consistent with a major, sustained exercise of market power."

"Motive: this speaks for itself. The ability to sell...during high price periods is massively more profitable than business as usual."

A similar situation prevails in the natural gas market. A subsidiary of El Paso Natural Gas contracted to control much of the pipeline capacity used to deliver natural gas to California. Yet it hasn't fully utilized this capacity--creating a shortage of natural gas and skyrocketing prices.

Some analysts believe this is not simply a move to boost profits--although the profits of the energy companies are shooting through the roof. Enron, the world's largest energy trader and the largest contributor to George W. Bush's presidential campaign, reported a 34% jump in profits--to $347 million--for the last three months of last year.

But much more is going on here than a grab for quick profits. The actions of the giant energy corporations are also part of a cut-throat battle between giant financial groups for dominance in the California and U.S. energy markets, which may include an effort to weaken or even bankrupt California's existing utility corporations. According to environmentalist Daniel Berman, ("The Confederate Cartel's war against California"), John Bryson, the CEO of Edison International, "has said that in 10 years there will be only 10 energy conglomerates left standing worldwide" and Berman sees what's going on in California as part of the battle to see who is left standing. One attorney quipped that this is the kind of transfer of wealth that nations have gone to war over.


The powers-that-be are scrambling to contain this energy crisis, but the outcome is far from clear. State and federal government and the big energy monopolies in California and nationwide are meeting daily behind closed doors--scrambling to keep power flowing, fighting over who's going to benefit and who's going to suffer, all the while maneuvering for advantage. The imperialists are already using this crisis to force more rapid and complete deregulation and the weakening of environmental protections.

As I rush to finish this story, hoping that the power stays on, V. I Lenin's point--about how modern technology and production have outgrown the "shell" and constraints of private property--comes to mind. The proletariat could definitely do better than this.

This article is posted in English and Spanish on Revolutionary Worker Online
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