Learn from Calif. mistake

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The myth of electricity deregulation has met reality in California, and the result is a $ 40 billion debacle.

Awash in energy-industry campaign contributions, California lawmakers freed the state’s utility companies of price controls in 1996. Consumers were ordered to pay off the utilities’ debts, after which competition was supposed to kick in, guaranteeing a 20% rate cut by 2002.

Deregulation proved a bonanza for the utilities. They sold some of their power plants and collected $ 19 billion in ratepayer subsidies. They used the money to purchase plants in other countries, reward their executives with huge pay raises, buy back stock and increase dividends. Profits reached record levels this year.

Envious, the handful of unregulated companies that control nearly half of the state’s electricity generation decided to cash in, too. This cartel began to withhold power, causing shortages that boosted the wholesale price of electricity that utility companies must buy by 3,900%. But, ironically, because of the way they wrote the deregulation law, the utilities are forbidden to pass the higher costs on to most consumers until 2002.

Now the companies want to rewrite the law. When public officials resisted the utilities’ demands for immediate rate hikes, the utilities threatened blackouts and bankruptcy. When that economic extortion failed, Wall Street issued an ultimatum: Order a 20% rate hike within 48 hours, as a first installment of an $ 11 billion ratepayer bailout, or Wall Street would itself force the utilities into bankruptcy.

California has learned the hard way that electricity is too vital to be left in the hands of unregulated corporations whose sole interest is maximizing profits. Facing a ratepayer revolt, state officials have re-imposed regulation. To make electricity reliable and affordable once more, they are considering establishing a non-profit, publicly owned power system for the state. But, in the meantime, the deregulation disaster could end up costing each Californian $ 12,500.

Meanwhile, elsewhere in the nation, corporate-funded ideologues and academics continue to promote electricity deregulation, much as they promoted loosening controls on savings and loans in the 1980s.

Whenever you hear the word “deregulation,” hold onto your wallets: Some industry is about to pick your pocket.

Consumer Watchdog
Consumer Watchdoghttps://consumerwatchdog.org
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