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Tuesday, Mar. 13, 2001 at 8:11 AM
Interesting look into the energy "crisis" from over the pond... may wash upon these shores any decade now...
Sunday, February 4, 2001
A HIGH PRICE TO PAY FOR THE POWER AND THE GLORY The Firms that are
pulling the plug on California learnt their trade from Maragaret
Inside Corporate America by Gregory Palast The Observer, London, Sunday
4 February 2001
President George W. Bush has announced that on 7 February, come hell or
high water, he will end Bill Clinton's order directing emergency
electricity supplies to California. As the lights on the Golden Gate
bridge blink off, the state's politicians are in full panic that this
spells bankruptcy for two giant regional electricity companies, Southern
California Edison and Pacific Gas & Electric. Not me. I can't think of
anything which would more joyously combine historic justice and good
public policy than their corporate death.
To understand why, we need to identify the true villains of the
California electricity disaster: the British.
The story begins in August 1989 in Atlanta, Georgia, with poor Jake
Horton, senior vice-president for Gulf Power, a subsidiary of Southern
Company, an unremarkable regional electricity firm dying of a thousand
financial wounds. Since the turn of the century, American states have
kept tight lids on utility monopolies' profits. In the Eighties,
consumer groups demanded, rightly, that power companies, including
Southern, eat their losses on foolish nuclear investments. The
cash-short company had resorted to such unfortunate tactics as keeping
hidden sets of account books tracking non-existent light poles.
Horton, told he would be fired, was on the point of testifying to a
grand jury about improper payments he made to politicians on the com
pany's behalf. (The company later pleaded guilty to this felony.) He
demanded and received use of the corporate jet to confront Southern's
directors. Ten minutes after take-off, the jet blew up. Poor Jake. 'He
saw no other way out,' laments former Southern chairman A.W. 'Bill'
Dahlberg. But for Southern itself, Dahlberg, who took over at Southern
after Horton's death, conceived of an unorthodox way out of its
The plan: the troubled local company would take over the entire planet's
electricity system and, at the same time, completely eliminate from the
face of the earth those utility regulations which had crushed his
California blackouts are just a hiccup on the road to the astonishing
success of this extraordinary programme. While America's papers are
filled with tales of the woes of the two California companies bleeding
from billion in payments for electricity supplies, virtually nothing
is said of the companies receiving their blood.
The biggest sellers and traders in the new California and Western market
are Enron of Houston, Reliant of Houston and Southern. The success of
Southern's plan for world power conquest (or, if you prefer, 'vision for
globalisation of energy supplies') hinged on Britain. As Keynes noted,
the mad rants of men in authority have their origins in the jottings of
some forgotten professor of economics.
So in case you've forgotten, the professor in question here is Dr
Stephen Littlechild. In the Seventies, Littlechild cooked up a scheme to
replace British government ownership of utilities with something almost
every economist before him said simply violated all accepted theorems: a
free market in electricity.
The fact that a truly free market didn't exist and can't possibly work
did not stop Margaret Thatcher from adopting it. In 1990, Littlechild's
market, the England-Wales Power Pool, went into business. On paper, it
was an academic beauty to behold. In this auction house for
kilowatt-hours, private power-plant owners would ruthlessly bid against
each other to cut electricity prices for British consumers.
I can't say for certain whether the market scheme failed in minutes or
days, but the pool quickly became a playground for what the industry
calls 'gaming' - collusion, price gouging and all means of fleecing
captive electricity consumers. Ten years of hapless fixes by Littlechild
and his successor have failed to stem the tide of rip-offs at the heart
of this unfixable system.
At the same time, 'deregulated' regional electric companies expertly
vacuumed the pockets of captive customers. From their besieged Atlanta
headquarters, Southern's executives learned they could charge in England
double the price permitted in Georgia. The moment the Government
permitted it, Southern bought SWEB, the old South Western Electricity
Board. This was the first purchase ever by a US power company outside
the States. The cash rolled in and American operators soon grabbed the
majority of the British electricity sector.
Although Thatcher's private power market scheme was a poor idea that
proved worse in practice, the International Monetary Fund and World Bank
adopted it as a requirement of every single structural assistance
programme worldwide. The World Bank's former chief economist, Joe
Stiglitz, told me how IMF and Bank teams would fly into Russia and Asia,
preach the wonders of privatising electricity markets, 'and you could
see the wheels turning in the local officials' minds'. Here was a means
for their corruption 'rents' to multiply a thousand-fold.
Power systems were privatised from Brazil to Pakistan and the baksheesh
flowed. Or so say Pakistan's anti-corruption prosecutors although the
World Bank dismissed the allegations. US power buccaneers, led by
Southern and Texas companies Enron, Reliant and TXU, grabbed plants and
wires on every continent save Antarctica. But not in the US, not at
first. It stubbornly exempted itself from neoliberal 'reform', and this
rankled the new international players. So the industry's lobbyists
brought Thatcher's professors and their wheezing power market
contraptions to California.
In 1996, the state's legislature, inebriated by long draughts of utility
political donations (entirely legal), tossed out a regulatory system
which had provided reasonably cheap, clean, reliable energy to the
state. Despite the British disaster, the sun-addled legislators wrote
into the law itself the lobbyists' slick line that a 'deregulated'
market would cut consumer prices by 20 per cent.
My parents sent me their light bill from San Diego. Instead of 20 per
cent savings, last year their energy charges rose 379 per cent. But
before the bills hit, the new planetary power merchants, using a
combination of money muscle and America's penchant to follow California,
suckered 23 other states into adopting deregulation plans. SCE and PG&E,
California's two big regional distributors, wrote a UK-style 'price
freeze' into the law which permitted them to stuff their accounts with
bn in extra revenues as oil prices fell. Now that the oil market has
reversed, the stacking, cramming and scheduling games the traders
learned in the UK have literally come home to roost. These two companies
are sinking under the bn in debt for the power from Southern and the
other deregulated sellers.
So I dressed for their bankruptcy burial in a dark suit and a big grin.
(Fifteen years ago, working with government, I had enormous fun pushing
a multi-billion dollar New Hampshire utility into bankruptcy. There, by
the way, the lights are still shining bright). Unfortunately,
California's governor, Gray Davis, pounded by the utilities' lobby
machine and bogus power outage scares, appears to be losing his courage.
He's now considering how the state can borrow money to bail out the
companies and bill it to consumers. And that reveals the real wisdom of
the deregulated marketplace: the brilliant method by which profits are
privatised and losses socialised.
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