Electricity “Crisis” Caused by 1996 Deregulation: Californians Face Blackout As Energy Industry Profits Skyrocket

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Consumer Group Sees State of Emergency, Ratepayer Revolt;

Santa Monica– The threat of blackouts isn’t the worst news for the public, a consumer advocacy group warned today. Blaming the deregulation law sponsored by Gov. Pete Wilson and the Legislature in 1996 for the crisis, the Foundation for Taxpayer and Consumer Rights (FTCR) said that the deregulated energy industry was manipulating supplies to increase profits and that if the state’s utility companies get their way, utility rates in S. California, now frozen, will increase by hundreds of dollars a month almost immediately.

Read FTCR’s fact sheet about the utility crisis.

The non-profit group said that if the Governor and Legislature did not act immediately to repeal the deregulation law and restore a reliable and affordable publicly-controlled electric system, it would mount a ballot initiative to do so. It further called for the Governor to take steps, including the take over of some power plants, if necessary, to produce electricity from existing generation plants that are unnecessarily shut down.

“The disastrous deregulation law hit San Diego last summer, where utility bills went up 300%. Now it has hit the rest of the state,” said Harvey Rosenfield, the consumer advocate who sponsored successful insurance reform Proposition 103 and President of FTCR. “It’s blackouts now; soon, it will be $200 a month electric bills. We can’t afford to have our public health and safety and our economy in the hands of energy conglomerates whose only interest is in achieving record profits by manipulating the supply of electricity. We are in a state of emergency. The people in Sacramento four years ago got us into this mess. Now the people up their have to get us out of it. If they don’t act, there’ll be a ratepayer revolt at the ballot box.”

Blackouts Threaten Public Safety

Throughout the week, Californians have been warned against turning on Christmas lights and on Thursday the operator of the state’s power grid, ISO, called on residents to set thermostats to 55 degrees when out of the house. These Scrooge-like warnings were dramatically overshadowed by the emergency alert issued Thursday night.

The rolling blackouts associated with a Stage Three Emergency have broad public safety implications including increased crime and car accidents that inevitable occur when traffic signals go out and main thoroughfares are not illuminated. Advocates also expressed concern about fires from candles lit during power outages as well as the possibility of deaths due to insufficient heating (or air conditioning in summer months).

“This is no longer just about Christmas lights; deregulation is a public safety issue. Our energy supply is simply too vital to our health and economy to be left to unregulated private power companies,” said Douglas Heller, consumer advocate with FTCR.

Power Supply Manipulated by New Energy Cartel

Unlike reports from the power company controlled Independent System Operator (ISO), which manages the state’s grid, advocates explained that there is not an energy-capacity shortage in California. The shortage, they said, has been artificially created by the cartel of energy companies that produce energy for Californians. These companies manipulate the market to increase profit by keeping supplies tight. According to a series of reports, including a recent California Energy Commission report, the state has sufficient capacity to withstand the state’s energy needs even at periods of peak demand.

Independent investigations have stated that, using the 1996 deregulation law, the energy companies are able to manipulate supplies and prices. In a report issued July 17, the California PUC found:

“[S]ellers may have been withholding power from this market in order to drive up prices in other parallel markets.” (California’s Electricity Options and Challenges, p. 14).

It continued: “During some periods, it is in the generator’s interest to withhold some power because in so doing it can drive prices up, according to Severin Borenstein, a professor of business at UC Berkeley and PX Boardmember,'” (p.28).

Advocates rejected the argument that the shortage could be blamed on a lack of new power sources in the state in the last decade. According to data from the Energy Information Administration (Form EIA-860B, “Annual Electric Generator Report Nonutility”), over 4500 megawatts of power have been brought on-line, including nearly 2000 megawatts since 1998.

Advocates also questioned the assumption that consumption is up dramatically from previous years. FTCR believes that consumption has increased by a moderate and expected amount and cannot account for the tight market.

Governor Should Declare State of Emergency, Force Plants to Run

With the state on the brink of rolling blackouts, consumer advocates called on Governor Gray Davis to declare a State of Emergency. According to FTCR, the Governor and Legislature should take the necessary steps to enter and seize plants that are off-line, but could safely generate electricity to ensure the reliability of the grid.

“The deregulation crisis has gone too far, and the Governor must step in immediately to protect the state from these artificial shortfalls,” said Heller. “The state should take over plants that are unnecessarily off-line to combat the current emergency and get into the business of owning and operating power plants to protect Californians for the long term.”

Public Power Seen as Solution

The Governor should make concrete proposals to end the deregulation experiment that has caused this energy crisis and initiate the development of a state power agency that can mitigate future shortfalls, according to advocates. FTCR has introduced a series of proposals to end the deregulation experiment in California and establish a reliable and affordable energy system. The plan has been submitted to the Governor and members of the state legislature. It calls for

  • refunds to San Diego customers (and customers of other regions that may subsequently experience deregulation) of excessive electricity charges through a windfall profits tax on profiteering power generators;

  • oversight of electricity rates by the Public Utilities Commission (PUC);

  • an integrated resource planning process to address future energy needs;

  • the creation of a state power authority to ensure the fulfillment California’s energy needs, promote conservation, and construct and operate power plants, transmission and distribution facilities;

  • changes to facilitate the authority of local and state government to exercise the power of eminent domain if necessary; and

  • strong accountability mechanisms for state agencies.

FTCR, which has filed an initiative campaign committee, Californians for the Protection of Ratepayers, says that if elected officials do no act, voters will enact a public power measure at the ballot box.

Read FTCR’s fact sheet about the utility crisis.


Consumer Watchdog
Consumer Watchdog
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