California's Deregulation Disaster (Page 2)

Companies like the North Carolina-based Duke Energy, Reliant of Texas and the Houston-based Enron, the nation's biggest natural-gas distributor (and a key supporter of George W. Bush), made billions selling power at high rates to the companies that had just sold them their generators. By one estimate, since last spring PG&E and SoCalEd have spent $12 billion more on power than they were able to collect from their customers. In some cases, the two companies were forced to sell juice to consumers at a rate of $64 per megawatt-hour while paying $1,400 for it.

Even rival utilities got into the act. Oregon's Portland General Electric withdrew a proposed rate hike for its own customers when it realized it could sell power in California at a higher profit. At least two large bauxite smelters in the Northwest shut down and realized some $500 million in profits by selling into the southbound grid cheap electricity they were buying on long-term contracts with hydro generators. Selling power was, simply, more profitable than making aluminum. Perhaps most telling of all, the parent companies of PG&E and SoCalEd made as much as $3 billion selling power to electricity distributors, which were now pleading for state help to avoid bankruptcy.

California Governor Gray Davis made repeated calls to the Federal Energy Regulatory Commission and other national bodies to help fix prices, guarantee supply and punish those companies gouging California consumers. But if the crisis has illustrated anything, it's the inability of federal agencies to control powerful suppliers whose political clout is exceeded only by their ability to have their way with one of the world's most complex entities, the electric-power grid. "Never again can we allow out-of-state profiteers to hold Californians hostage," vowed a frustrated Davis. But at this point it's not clear who could prevent it. Congress has debated national deregulation bills, but they've gone nowhere. And most were headed in the wrong direction, giving the private companies more license to mess with the system, not less.

None of the two dozen other states that have deregulated have yet suffered a disaster on California's scale, but the results have been decidedly mixed. By promising low rates and real competition, Massachusetts utilities beat back a 1998 repeal on the same day as the California repeal vote. Says Deb Katz of the grassroots Citizens Awareness Network, "Massachusetts rates are now some of the highest outside California. The only ones benefiting are the nuclear corporations that have had their bad debts paid on our back." Similar stories are repeated in nuke-laden Illinois and Michigan. In Ohio ratepayers have been saddled with more than $5 billion in bad reactor debts, and no real competition is on the horizon. In Pennsylvania, citizen groups beat back some of the utilities' stranded-cost demands. As a result, some margin has opened up for actual competition, and green energy suppliers have made some headway. But in Texas, which deregulated right in the midst of the California crisis, and in New York, which is doing it piecemeal, the results are not yet in. In two dozen other states that remain regulated, and in Congress, the term "gun-shy" might apply.

In California itself, consumer advocates want to put a sweeping rollback on the 2002 ballot. Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights, an early AB 1890 opponent, and others believe the utilities' ability to hoodwink the public will be severely constrained by recent memories of tripled electric bills and borderline survival. Gene Coyle, an energy analyst, says that if prices "shoot skyward again, a campaign should be winnable."

The state and private utilities are now caught in a vise. San Diego Gas & Electric, which had fewer stranded costs to pay off and thus quickly escaped the rate freeze, was able to double and triple its rates last summer, infuriating Southern California consumers. Meanwhile, Governor Davis is soaking taxpayers to buy power to resell to SoCalEd and PG&E to save them from bankruptcy because their rates are frozen. But if they weren't frozen, their rates would double and triple, infuriating the rest of the state.

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