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Lead article
News & Letters, July 2001
Profits soar in energy 'crisis'
by Ron Brokmeyer
On June 6, hundreds of trade unionists marched on a local Duke
Energy power plant in Oakland, Cal., demanding a public takeover
of California's power generation. This was only one of dozens of
ongoing demonstrations in California by labor, environmental and
consumer groups against a fake energy crisis in which power
generation plants, many of which were sold off by California's
own utilities, extorted exorbitant prices by withholding power.
As if California were a Third World economy, the state's power
grid operator regularly ordered rolling blackouts causing
tremendous economic dislocation, chaos in traffic and elevators,
and sometimes extreme hardship as with home care patients on
respirators. The shutdowns lured California Governor Grey Davis
into buying energy at outrageous prices.
Duke Energy is especially hated because it set a record by
charging the State of California an astronomical $3,880 per
megawatt hour on the spot energy market. The spot energy market
is a buy-it-as-you-need-it method and became the source for
power for California utilities when they sold off their
within-state power plants in order to deregulate.
Before energy prices spiked last year they were already at a
historically high average price of $50 per megawatt hour. The
demonstration was also against the notorious Federal Energy
Regulatory Commission (FERC) which fiddled while a mostly
Texas-centered power cartel of giants like Enron, Reliant and
Dynergy bled California dry. Their profits last year, even
before this year's gouging, went up 42%, 55% and 210%,
respectively.
Since January California went from sporting a $6 billion
projected surplus to financial ruin. It is now brokering with
skeptical bond underwriters, trying to float a $13.4 billion
bond issue. This loan is to be repaid through unprecedented
energy price hikes. That burden of a more than 40% hike went
into effect in June and falls on mostly residential customers.
This is on top of a 9% increase in January. The energy cartel
has stolen the surplus that was to go to improve long neglected
essential services, especially public education in a state that
now ranks 40th in spending per pupil.
At the same time California's two largest utilities, the
bankrupt PG&E and Southern California Edison, were allowed
by FERC to shield billions of dollars in profitable assets,
which have been transferred to their parent companies. They left
the local utilities saddled with $14 billion in debt. Declaring
emergency powers, Governor Davis set up a power authority and
used the state's treasury to buy $50 to $75 million in power
every day since January, at prices from 10 to even 60 times last
year's wholesale electricity rates. Davis has also been trying
to secretly negotiate long term contracts and bailouts of
California's utilities by having the state buy their
transmission lines.
Only on June 18, after the State of California was bled dry,
after public uproar and mass demonstrations throughout the
state, did FERC move on its November, 2000 determination that
California wholesale energy prices were not "just and
reasonable" and institute "price mitigation." Up
until then FERC did almost nothing though its responsibility is
precisely to regulate wholesale energy prices to make them
"just and reasonable." That regulatory responsibility
goes back to the 1930s when, during the Roosevelt
administration, the capitalists themselves recognized that
reliable power at a reasonable price is the lifeblood of an
industrial society. Over the whole year the projections were
that rolling blackouts would result in $16 billion in lost
production and other damage.
A CRISIS OF GREED
Problems started in May of 2000 when electricity prices
skyrocketed from $50 a megawatt hour to $180. This was caused by
a jump in the price of natural gas used in many California power
plants. Natural gas prices went up to $19 at the California
border for the same amount of gas that cost $5 in Texas.
According to Texas regulators, only another dollar could be
reasonably added for transportation. The difference is that
Texas giant El Paso withheld 1 billion cubic feet a day of
excess pipeline capacity to drive up natural gas prices and
conspired to stop an additional pipeline that would have fed
northern California from Canada. Gas prices dropped dramatically
since El Paso Merchant Energy's contract expired May 31, 2001
and 30 competing shippers started to share the pipeline
capacity.
Because electricity is a commodity that cannot be stored and
must be used as it is produced and put on the grid, it is the
easiest market to manipulate. Texas- based Enron Corporation
runs the world's largest e-commerce site including a spot energy
market. The company has an army of specialists in everything
from weather to geology figuring how to manipulate the market.
They struck gold in California. The so-called shortage that hit
California was caused by a quadrupling of the number of
unscheduled power plant shutdowns. Typical of reports from many
different power plant workers in California was one from an
Etiwanda power plant in San Bernardino, owned by Texas' Reliant
Energy. Workers reported that they were repeatedly ordered to
shut down and then restart as they watched the spot market
energy prices rise past a certain point. Sometimes this happened
four or five times in an hour. An ex-worker at a Duke power
plant told a state Senate committee that his plant was ordered
to go up and down "like a yo-yo."
When PG&E declared bankruptcy, one-third of the independent
power producers exacerbated the fake shortage because they
stopped producing after they hadn't been paid in months by the
bankrupt utility. For its part, the parent company of PG&E
is a major energy producer out of state and is itself under
investigation for price gouging and market manipulation in
Boston. The entire northeast region is now also asking for price
relief from FERC.
The same Texas energy players that were bleeding California's
treasury dry pumped unprecedented money into the Bush campaign.
Enron CEO Kenneth Lay contributed a half million dollars alone.
Bush's illegitimate presidency was financed outside any spending
limits by using nearly unlimited funds from his energy pals.
Once in power Vice President Cheney openly relied on Lay to
formulate energy policy in secret meetings and allowed Lay to
hand-pick federal regulators. With former energy CEO's Bush and
Cheney in the White House, there is a virtual interlocking
directorate for energy policy between the executive branch of
government and the current Texas energy CEOs. Raking in the
loot, the ultimate sin for them is price controls, and the other
capitalists experiencing calamity and calling for controls are
the biggest infidels.
CAPITAL'S RELIGION
But liberal opposition can never seriously challenge an even
deeper religion than faith in the market. That is capital's need
for the self-expansion of value production as an objective truth
that trumps concern for nature or workers who have to buy energy
to live. Thus, the ruling ideologues are using the present
economic problems inflicted by the energy industry against
conservationists and future generations for whom non-renewable
resources will disappear.
Along with Cheney's policy of drill-and-burn-with- impunity
approach came his smug dismissal of conservation as merely a
"sign of personal virtue." However, Californians, who
are already in one of the most conserving states, did heed the
call to conserve even more, especially with a run on light bulbs
that use less energy. They cut energy demand an additional 10%.
By the end of June suddenly power plants, facing a lot of public
scrutiny and price caps from FERC, stopped withholding capacity
and energy prices fell dramatically to below $100 per megawatt
hour. Suddenly the prophecy of impending doom-hundreds of
rolling blackouts during this summer's peak usage period-has
nearly vanished.
Bush-Cheney and their fellow energy lords kept saying price
controls would only make matters worse and that there were no
short term solutions to California's problems. They returned us
both to the retrogressive ideology of the 19th century as well
as to its pollution when capital went unchecked in its rape of
the environment through drilling and burning. Bush relaxed
pollution constraints on power plants. Bush even told the world
to go to hell when he broke a campaign promise and rejected the
ever so mild globally negotiated restraints on green house
gasses to reduce global warming.
No supply of fossil fuel is off limits to capital's voracious
appetite, from the delicate Arctic National Wildlife Refuge and
the Florida coast to national monuments and the California
coast. Mexico was enlisted to fire up even dirtier plants across
the border which will belch pollution both in Mexico and in
Imperial County, California. Unthinkable a few years ago, new
nuclear energy plants are back on the agenda. Of course, they
want a government subsidy in the form of extending a limit on
their liability in accidents-a corporate welfare no other
industry has.
Governor Davis has been a fountain of populist rhetoric, rightly
attacking the energy giants strangling California. He promised
there would be no further increases in utility rates on
residences after the January increase. His populism only went so
far. When businesses screamed about getting hit with the
colossal June increase, Davis retreated and again placed the
burden almost wholly on workers. Davis' pronouncements have been
full of sound and fury, threatening from the start to seize the
price gouging power plants under the state's power of eminent
domain. Davis' overriding concern, however, is to do nothing to
alienate investors and capital markets who might no longer feel
"safe" in California.
Many point to Los Angeles and publicly owned power of the kind
workers fought to institute there at the beginning of the 1900s
and won in 1916. They fought reform tendencies that were pushing
for mere market regulation which today's experiences show is
easily corrupted by those who are to be regulated. It is true
that during this crisis the 1.2 million Los Angeles customers
had cheap, abundant, reliable power from their municipally owned
utility. However, they didn't pass up the chance to sell their
excess power to the State of California at exorbitant prices
until Governor Davis threatened to move against them. Public
power will not turn around the reality of capital as an alien
force that dominates humans.
Capitalists let the energy companies get away with as much as
they did because all capitalists are united in reinforcing the
dominance of capital against workers. That means doing
everything to promote their permanent restructuring in a global
economy. All the different layers of capital and government had
to do something when energy companies were spoiling the party
and the ideology that drives deregulation began to be seriously
questioned. As Senator Lieberman, who started hearings in the
new Democratic controlled Senate put it, "If the federal
government doesn't step in and provide temporary price relief,
the natural trend toward deregulation will come to a halt."
Now the brokering between regulatory agencies, the courts, and
the state may go on for years while workers pay the bill. With
the California-centered energy crisis we get a glimpse how
players in industry, the government, the world of e-commerce and
finance capital reinforce a propensity for 21st century
capitalism to self-destruct on the backs of workers who produce
everything. That can only be turned around when humans as
workers freely create their own social relations and take
responsibility for humanity's metabolism with nature.
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