Power Companies Rake in $$$ from Energy Crisis


California’s power “crisis” would be better named “The Great Rip-off.” The power companies, with the connivance of the politicians, have raked in tens of billions as a result of this carefully engineered “crisis,” and are demanding more.

So blatant has the scam become that even a few state Democrats are making noises about the need to take over the power plants and set up a public power utility.

It all began with deregulation of the power industry in 1996. The two major power companies in the state, Pacific Gas and Electric (PG&E) and Southern California Edison (SCE) helped write the deregulation bill that was passed unanimously by both Democrats and Republicans in the California legislature. The rationale at the time was the “free market” swindle being promoted by capitalist governments around the world.

In this fairytale, ending regulation would introduce competition as tens of new power companies would spring up. Nothing of the sort happened. Some new big companies did become power producers, in addition to PG&E and Edison, but far from introducing a “free market,” they formed a cartel to control prices.

This is how the scam worked: According to the deregulation bill, PG&E and SCE would sell half of their power plants. PG&E and SCE then set up two companies each, one which owned the other half of the power plants, and one which bought power from the producers’ cartel and sold it to consumers via the power transmission lines. PG&E Corp. owns the power plants, while PG&E Co. distributes the power.

PG&E Corp. wholly owns PG&E Co. The same relations hold between International Edison and SCE. One regulation that was done away with required the old PG&E and SCE to maintain enough power-producing capacity so that there would always be considerably more capacity than demand projections. This change freed PG&E Corp. and International Edison to shut down older, less efficient plants, and allowed them not to build new plants, so that potential supply was restricted.

Deregulation also introduced some new regulations at the insistence of the power companies. One was to fix the prices the distributors would charge consumers well above the costs of producing electricity. Until 2000, these super-profits, estimated by consumer groups to be about $20 billion, were turned over to their parent companies. PG&E Corp. and International Edison used these funds to pay off bad debts, including for their nuclear power fiascos, and to buy up new power plants across the U.S. and even some abroad.

As the summer of 2000 approached, the producers’ cartel, aware that demand was going to outrun the supply, which they had kept low, saw a chance to make a real killing. Pleading the “laws of the market,” the cartel started jacking up the prices for electricity they sold to PG&E Co. and SCE.

I work in a small steam-power plant that sells electricity to PG&E. As a result I was able to see how these wholesale prices soared. Each day, the cartel of big producers would meet and bid on the prices they would charge the distributors. And the highest bid would be what they all would charge!

My small plant was not part of the cartel, but would be sent what the prices were to be for the next day over the Internet. The prices would vary from hour to hour for the next day, depending on projected demand.

Early in 2000, the price for a megawatt-hour was about $30. In the summer it started to go up-$50, $75, $150, $300, and higher. When demand slacked as cooler weather came in the fall, prices were supposed to go down, but they went up higher and higher!

In December and January of this year, prices throughout the day averaged from $300 to $700, with some hours much higher. For some hours in January, the price was $2500-more than 9000 percent higher than they were a year before.

A factor in keeping the prices high was that about 25 percent of productive capacity was shut down throughout this period, ostensibly for “maintenance.”

PG&E Co. and SCE were still bound by the regulation they had insisted on that froze the prices they could charge consumers. While this had previously worked to rake in super-profits, now that the wholesale prices had gone through the roof, PG&E and SCE went into debt and are continuing to go into debt. But we have to keep in mind that this is a bookkeeping sleight of hand, as their parent companies have been raking in the dough like mad selling power to their wholly owned distributors.

The response of the state government, headed by Democratic Gov. Gray Davis, has been to spend billions in buying power from the cartel and giving it away to the distributors so that the lights don’t go out. PG&E Co. and SCE promptly turned over billions to their parent companies.

Davis also entered negotiations with PG&E and SCE to buy some of their power lines at prices billions of dollars higher than what they were worth, as another way to bail out the distributors.

But PG&E Co. declared bankruptcy anyway. Before doing this, PG&E Corp.-awash in tens of billions-legally maneuvered to protect its cash and other assets in the event that its subsidiary filed for bankruptcy.

International Edison did the same in relation to SCE. So far, SCE hasn’t declared bankruptcy, but has tentatively and graciously agreed to allow Davis to buy part of their power lines for two to three times their worth, in the hope that this will enable SCE not to go bankrupt.

When PG&E declared bankruptcy, state Senate leader John Burton and a few other Democrats raised the idea of taking over the power companies and building a public utility. They noted that since January the state had given PG&E over $4 billion-about $1 billion more than what PG&E sold half its plants for. Each day, the state is now giving away $58 million to these gangsters to keep the electricity flowing.

What do the big power companies want-in addition to billions more in state funds? They want to raise rates to pass on the artificially high wholesale prices. The actual costs of producing electricity have not risen, and are well below the $30 a megawatt-hour wholesale prices were at last year. They also want to get rid of or gut environmental protection rules.

The arrogance, greed and calculated attack on the public by the big power companies are astounding. The whole scam, from 1996 to the present, underlines the necessity of the state taking over all the power companies, producers and distributors, and establishing a public power utility. Such a public utility should be run by an elected public board, with all its decisions, transactions, and books open to public scrutiny.

But don’t put any faith in capitalist politicians like Burton, who sat back and allowed the whole situation develop, to accomplish this obvious solution. What is needed is a powerful mass movement to take over these rapacious companies. Given the likely affect on workers of huge rate increases and depletion of state funds that could be used to better schools, etc. the labor movement should become the spearhead of such a movement. So far, the union leaders are conspicuous by their lack of action.

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