As they munch on smoked duck ravioli and Squid ink tagliolini at a chic Italian eatery tonight (8/14) hosted by the Sempra energy conglomerate, DNC officials might pause between courses to consider the plight of utility ratepayers 120 miles to the south. Since May, the price of electricity for San Diegans has risen over 250%, causing the average bill from San Diego Gas & Electric, which is owned by Sempra, to more than double. Restaurant owners are endanger of losing their businesses. Senior citizens and those on fixed incomes must choose between necessities — paying for food or running the air conditioning in stifling heat. It is estimated that the crisis is draining $100 million per month from the region’s economy — all the courtesy of both political parties’ cave-in to big energy corporations.
The cause of this human and economic disaster is utility “deregulation,” a 1996 bipartisan Sacramento boondoggle that gave immense cost-transfer power to Big Business.
The Democratic party of yore would have stood up for the strapped ratepayer rather than with utility executives, but the modern corporate Democrats promoted the 1996 boondoggle and are now dining out with the energy barons. Rather than repudiating deregulation, Governor Gray Davis said just last week, “Eventually deregulation will work, but there are growing pains.”
Calling it deregulation was the half-truth upon which this scheme was sold to the public. To be sure, the legislation removed most regulatory controls from the utilities themselves. But it then proceeded to regulate residences and small businesses by forcing them to pay electricity prices 50% above the national market average for four years. It required that the difference — an estimated $28.5 billion — be used to pay off the utilities’ bad debts: non-competitive investments in power plants, principally nuclear. After that, ratepayers were promised, competition would flourish, lowering prices. California became the model for deregulation laws in other states.
The bill was passed unanimously, a particularly egregious example of the increasing interdependence of the two major political parties on corporate cash: utility and power companies spent $3 million in Sacramento to grease the bill’s passage. $80 million more was spent by utilities on grant payola to win the support of community and non-profit groups. In 1998, consumer groups backed a ballot measure, Proposition 9, to void the portion of the law which required ratepayers to bail out the utilities’ mistakes. However, the utility and power companies spent $40 million to defeat it — including payment of $500,000 each to the state Republican and Democrat parties for mailers urging a “no” vote.
Of course, the promised free market has not materialized. That’s because the handful of energy companies that control the supply of power have no incentive to alter their price gouging behavior. Rather, these companies maximize their profits by restraining the supply of electricity. This is the economics of virtual cartels. San Diego ratepayers paid off SDG&E‘s bad debts early, the rate freeze ended and the ratepayers became the canaries in the coal mine. Meanwhile the power companies’ profits have skyrocketed. Sempra reported a 34% increase in earnings last month, while Houston-based Enron — one of the prime movers of the 1996 legislation and the second largest donor to the Republican National Committee — went to the bank with a 30% increase.
The deregulation disaster has ignited a ratepayer rebellion in San Diego. Led by former Mayor Maureen O’Connor and consumer groups, local officials there have declared a state of emergency, demanded a rate rollback to pre-deregulation levels and hearings to repeal the deregulation law. The utilities are begging the politicians to protect them against the public’s wrath. Last week, Governor Davis endorsed SDG&E‘s credit-card solution: ratepayers can pay less then they owe, but must pay the balance, probably with interest, later on. However, that inadequate step was quickly overshadowed by the state Senate’s passage of rollback legislation. The Assembly is scheduled to vote on the bill next week. Governor Davis, whose corporate fundraising prowess is matched only by his deft ability to evade decisions that might alienate donors, can prove his independence by insisting that a genuine rollback bill get to his desk.
The rollback is crucial but it’s only a short term fix. The shock of electricity deregulation will rock the rest of the state within two years as it is unleashed upon PG&E and Edison‘s ratepayers. Even customers of the state’s publicly-owned utilities, such as LA’s DWP, are vulnerable: a provision of the 1996 law encourages the sale of municipal facilities to the private power companies.
Electricity is a necessity, not a commodity. Government owes it to the people to provide a safe, reliable and affordable power system with mandatory energy efficiency and renewable energy goals. Stripping the public of its right to control the power industry has proved a colossal mistake, yet the major political parties and their candidates remain on the record in support of it. When the short-term gain of politicians (campaign contributions) furthers the short-term aims of big corporations (higher profits), consumers always lose — in the short and long term.
A version of this commentary appeared in the Los Angeles Times on Monday, August 14, 2000.