Energy Crisis Part I

Report given to the National Board

Power Cartel to Blame for California Energy Crisis

On Sunday, Sam, Juan and I met with a friend who is in the daily thick of the power crisis in California. Before that, I had discussions with another friend in the thick of the power struggle in a different but also critical arena. I also have had exchanges with a leader of the Utility Workers Union.

Put together, these discussions made evident how complex the crisis in California is. When you meet with the experts, you realize how little you know. You don't get the full scope just by reading newspapers. These discussions with our friends help tremendously, which emphasizes how important it is for the Party to be connected to coalitions and leaders.

This crisis requires more thinking, research, analysis than this report is going to give. Frankly, the underpinnings are very complex and confusing. But we have to start somewhere so I am taking a plunge to get our work going. I'm sure the Board discussion will further our assessment and action proposals.

An Energy Disaster

The energy crisis in California is a disaster. It takes on terrible dimensions each day. It is not only electric power. There are gas shortages now and serious water shortages are predicted. These shortages will worsen the already grave power crisis.

You don't hear too much about the human dimension of the crisis. The papers tell the story in broad strokes. They speak of consumer price hikes. But picture the faces of millions -- working families, seniors on fixed incomes, those who live in poverty -- who are experiencing electricity and now gas bills, which are doubling, tripling and more. When I stayed with Bobbie in the Bay area during my stay for the last two days, she showed me her bills. She has not increased her usage of gas. Yet, just between last month and this, her bill went up from $58.00 to $98.00.

That's on top of increases every month over the last months. Millions are getting bills like that. In San Diego, which was where the crisis started, the electricity bills went up 300%.

Those who live in poverty have it worse. They are now having to make decisions between letting their lights go off or buy their children the new shoes they need or school supplies. Even worse they have to choose between paying the electricity bill or buying food or paying the rent.

Never before in history have we had Stage 3 power alerts, which are alerts that the lights could go off, but now we have a statewide backdrop of daily Stage 3 electricity emergencies in California.

The state has experienced rolling power outages that have not been seen since World War II. These are life-threatening outages even though they are temporary; power could go off which runs equipment that keeps people alive. Security is jeopardized. Accidents increase.

Layoffs of workers came along with the crisis. Southern California Edison sent 1400 workers home for good. Plant closures are on the horizon with manufacturing workers losing their jobs. Small businesses could topple, which puts more workers out on the streets.

A Disaster Made by Capitalism

This is not a natural disaster; it is a disaster created by capitalism. It is one of the ugliest, most despicable faces of capitalism. Deregulation, privatization and the free market have taken essential resources necessary for the survival of people, for the survival of our country, and used them against the people in order to make profit windfalls for already powerful corporations.

Examining how the power industry corporations have manipulated supply, maneuvered around the laws, corrupted or duped legislators into going into collusion with them is a 101 lesson in 21st Century style-imperialism the highest stage of capitalism.

Government bodies have passed laws and regulations that have allowed the power industry corporations to get away with profit murder. There has been an orchestrated plan of financing elected officials to be there to help these corporations when their dirty work is exposed.

Revelations are emerging every week about how private energy corporations, their subsidiaries, their holding companies, schedulers, etc., have manipulated supply and schemed in order to squeeze out maximum profits at the expense of working people, the poor, small businesses, seniors--the majority of people of California.

A National Emergency

The energy crisis in California is in the eye of the energy storm. It is the starting point of what is beginning to spread across the country. It is intensifying the economic crisis. It is an emergency situation that affects the nation.

The Bush administration's failure to put a cap on wholesale prices by the power generators discloses the coming pro corporate national energy policy of the extreme right. That policy will facilitate the gorging of profits by the private energy industry.

The Federal Energy Regulation Commission (FERC) also has done nothing to stop the power sellers from charging the highest wholesale prices in history. The Bush administration and FERC are calling on the rest of the nation to abandon California, blaming state regulators for the problem. But this is more than a California energy crisis, it's one of those, "If they come for California in the morning, they will be coming for you at night" scenarios which requires national protest.

If federal government policy allows corporations to get away with their pillaging of California consumers, that policy will eventually affect the whole nation. The regional nature of the electricity grid and market has already led to dramatic increases in rates in the surrounding states. Even though there is no deregulation in Washington, Oregon and Montana, the California crisis-driven rate hikes have led to thousands of layoffs in those states. Consumers across the country have been feeling the pinch of rising electricity and gas prices during the winter. The summer will bring on even more. How the crisis is solved in California will have a national and international affect.

The counter side of the crisis is that not since the New Deal has the demand for public ownership become such a popular demand. The demand has emerged in every arena of the California battle, from the legislature to the streets. Governor Davis himself was forced to place public ownership as an option in his State of the State address a few weeks ago. Proposals for public takeover of power plants, the transmission grid system, and the utilities have become a total part of the debate.

The Power Cartel

Our friends emphasized that the main cause of the crisis comes from a cartel of power generators that are based outside of California. Enron Corporation, Dynegy Inc., and Reliant Energy--all based in Houston, Texas--and Duke Energy, based in Charlotte, North Carolina, are the heavy hitter members of the power cartel.

Daniel Berman, the co-founder of the Coalition for Local Power in Davis, California calls these corporations based in the south, the "Confederate Cartel."

The underground workings of this power cartel have schemed and manipulated the ripping off of profits from consumers using the cover of deregulation in California. But the cartel is not just a problem for California, it is a powerful grouping which functions nationwide and all over the globe.

Enron is the leader of the pact. They were the biggest promoters and motor for deregulation. The CEO of Enron, Kenneth Lay, has had long time connections to the Bush family. He was formally an official energy advisor to the first Bush administration and is an advisor to the new one. One utility executive said, "You hear his [Lay's] thoughts coming out of Dubya's mouth when he speaks about energy." Lay is also the biggest fundraiser for Dubya.

Enron built its fortune by exploiting gas markets after gas deregulation. Its revenue shot up to $100.8 billion in 2000 from $40.1 billion in 1999. Almost the entire increase came from buying and selling contracts in natural gas and electricity.

Enron uses new "21st Century" methods for extracting profits, including global competition on the Internet. It is considered the best and most profitable model for the energy industry of today.

According to an article in the Los Angeles Times, one of the new methods is the concept of "optionality," which means that "a business uses access to many customers and suppliers to minimize risk and maximize value in any transaction. An electric company, for example, might not use a power plant to generate maximum electricity, if selling the plant's natural gas fuel could bring a higher price at that moment."

This exploitation of temporary differences between gas and electric markets, technically called arbitrage, results in the selling of gas or electricity based on what is most profitable, not on what the needs are of society at that moment.

The many forms of manipulation of supply that led to the crisis in California, included the turning off generators for maintenance to create an artificial shortage to enable members of the cartel to drive prices sky high.

The Utilities

The utilities companies bought into deregulation because they saw a profit in it for themselves and they played the corporate manipulation game as well. They sent their profits from their deregulation good times, when consumers were paying rates higher than cost, to their parent companies out of state.

These billions of dollars could have been used by utilities to pay their bills owed to the power generators but since the profits are in the hands of the parent companies, they cannot be used to solve the crisis. Instead, consumers are being given higher rates and a $10 billion bond, which their children and grandchildren will have to pay back in the years to come. The Public Utilities Commission decided this week to go after the utilities for possibly violating the law in doing this. So, for the first time, the Commission is trying to see if they can get that money back from the parent companies.

Again, here's where the federal government plays a role. George W. could facilitate getting the profits back to California to help consumers or let the parent companies keep the profits. As of now, he has decided not to help consumers. Instead, Dubya is saying the free market will work out the problem for the nation, and California should solve the problem it created.

One of the things that our friend pointed out is that the utilities industries, Southern California Edison and Pacific Gas & Electric in the first place, took the hit in the competition of corporations for more profits. They are in fact going bankrupt. In the capitalist market, competition causes corporations to go down also, even huge ones. It is the power generators, the cartel, that is the big winner in this crisis.

I don't think we should have a lot of sympathy for the utility companies since they were part of the conspiracy, lock stock and barrel, in many ways, shapes and forms. They lost their gamble. But our friend points out that when they go bankrupt it is the power generating companies that will take them over from outside the state without California's political control.

The exposé of the role of Enron, Reliant, etc. has been revealed in media articles but it has not been highlighted. Exposing the cartel, and the whole capitalist interconnection between these corporations and the Republican Party, President Bush and not in the same way, but also the Democratic Party, should be something that we help to do.

An Alert to America

This is an alert to America. United States-based global corporations are ripping off an essential resource to make profits for themselves. In the course they are wreacking havoc on workers, the poor, small businesses, small farms, even other big corporations.

Exposing their role is not only an indictment against capitalism but is the basis for arguing for public ownership in California and public takeover of the energy industry in the United States. Private corporations cannot be trusted with people's essentials of living -- gas, electricity, water.

Power to the People!

The fact is that cities like Los Angeles are not facing the same crisis because the city refused to sell their power plants when state deregulation laws hit. Water and power are publicly owned in Los Angeles and under the public authority of the Department of Water and Power. Public ownership is profitable and keeps the rates down. Sacramento, Pasadena, Burbank and other cities have public ownership and they are faring better in the crisis with lower rates and uninterrupted power to their consumers.

If the crisis continues unchecked, those cities will feel the crisis as well. It's just a matter of time. That is why the main demand should be for state ownership of the energy industry rather than municipal ownership. Municipal ownership in the long run will create competition between cities. State ownership under the jurisdiction of a Public Power Authority can coordinate the whole state, including local public ownership insuring that everyone is taken care of.

Political Underpinnings

There are political underpinnings. The Bush administration, representing the extreme right, is trying to put the crisis onto the backs of Democrats in California. Their aim is to undermine the tremendous electoral gains in California made as a result of labor/community electoral coalition in the state.

Even though the Democrats are part of the problem and deserve sharp criticism, we have to be careful not to fall into the Democrat-bashing bag. As in the 2000 election, there are those who are leading protests on the energy crisis pointing the main finger at Governor Davis and the Democrats while letting Republicans off the hook.

Focus on Dubya

George W.'s ties to the Enron Corporation are a central and driving feature of the crisis. While Enron's profits are soaring to the tune of $777 million in the fourth quarter of 2000,almost triple of what it made a year earlier, Bush refuses to intervene to help Californians. Adding to what was said earlier about Kenneth Lay, Enron's CEO, Lay served on then Governor Bush's business council, which gave advice on deregulating electric utilities and tax breaks for businesses. According to the Los Angeles Times, Lay recently had discussions with Energy Secretary Spencer Abraham and Treasury Secretary Paul H. O'Neill about California's energy crisis.

Another piece of the energy crisis puzzle is a look at the personnel of the Bush administration who have unprecedented connections to the energy industry. Vice President Cheney, Bush's Commerce Secretary and National Security Advisor are all closely tied to the energy industry. Bush himself comes from the oil industry.

Deregulation: A Republican Party Priority

Deregulation in California was actually enacted by Republican Governor Pete Wilson's Public Utilities Commission in December 1995. It still needed endorsement of the legislature, which at the time was controlled by Republicans in the Assembly with Democrats holding a bare majority in the State Senate.

The author of the legislation (AB 1890) was Assemblyman Jim Brulte, who is now a Republican State Senator and Bush's chief California operative. Democrats were suckered into voting for deregulation but Republicans drove it.
People's street heat demanding that Bush put a federal cap on power wholesale prices, which he and the Federal Energy Regulatory Commission have refused to do, is a critical demand that puts the heat on Bush.

Deregulation and Public Ownership Now!

Governor Davis and the Democrats are placing their solutions within the framework of keeping deregulation and that is a problem. Reregulation is a major demand that we have to place, much stronger than we have up until now.

The $600 million bond to purchase power by California passed by the legislature and approved by Governor Davis is not the long-range solution. Public ownership is. We should support all legislation that goes in that direction. That includes Senator Burton's (D-San Francisco) bill for state ownership of the power transmission grid. The state can also use its power of eminent domain to take control of power generating plants. Public ownership should include the preservation of union jobs. The existing workforce should be used for all operation, maintenance, and construction of power plants. Collective bargaining agreements should be recognized. A California Public Power Authority should be established with oversight of the industry.

Emergency Steps in Our Party

We have to have an emergency response to this emergency crisis. All states are now feeling what has grown into a national energy crisis so we need an approach to the crisis at all levels--federal, state, local and neighborhood.

We in California have now agreed to take an emergency approach. We will hold our first statewide meeting to coordinate our efforts. Northern California had an expanded Board meeting last Saturday and Southern California will have an expanded District Committee meeting this weekend.

Labor led, All People's Anti-Monopoly Movement

Our main goal should be to help build a broad all-people's labor led/anti-monopoly movement in California and across the country. If any moment exposes monopoly, it is this moment, it is this crisis. We need to help the labor and civil rights movements, organizations representing the poor, small businesses, small farmers to join forces with consumers' organizations, environmentalists and others to fight for energy justice demands. The cartel is a threat to other corporations big and small and some of these could be drawn into the movement.

We have to call for public ownership of the energy industry, for reregulation. But we also need to develop a program that calls for other immediate demands, including a federal cap on wholesale prices which Bush and the Federal Energy Regulatory Commission are refusing to do.

Low Rates & No Shut Offs!

This is a power cartel-created crisis for which consumers and small businesses should not have to pay. Rates should be rolled back to pre-crisis levels.

Understanding that it is low income households and those who live in poverty who will suffer the worst means that emergency legislation is needed to insure the poor have affordable rates in order to be able to survive. An immediate moratorium on electricity and gas shut offs should be established. A moratorium on evictions for the poor is needed. More food banks should be set up to make up for higher electricity rates.

We need to look into the question of environmentally safe methods of producing energy. We need to include a people's program for energy conservation.

In addition to these immediate steps, we should set up a special committee that continues to stay on top of the energy crisis from now on. We need to develop a Party program on the energy crisis that includes the preceding demands. This should be a major issue at our National Convention.

We also need more research on the power cartel and the energy corporations -- their role in California, the nation and internationally. We need to expose Bush's role in this. We need to expose the crisis as part of the Republican Party energy policy run by Enron and the cartel.

We need ongoing coverage in the PWW of the crisis in California and around the country.

A Global Dimension

This movement will create an atmosphere for building popular support for the concept of public ownership. It will lend itself to the call for public ownership in other industries like steel and auto. And there is an international dimension to this crisis that I want to indicate for your consideration before I end this report.

John Bryson, CEO of Edison International, the holding company that owns Southern California Edison, has said that in ten years there will be only ten energy conglomerates left standing worldwide. He said he hoped Edison would be one of them.

Also, data compiled by the Federal Energy Regulatory Commission shows there were 55 applications for mergers from January 1996 through July 2000.

None were disapproved; 44 have been approved.

The struggle for energy is global. There should be no doubt... this battle is a big one.

| Printer-friendly page | Send this article to a friend |

blog comments powered by Disqus