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CA's Energy Crisis:UK reporting!!

by RevereRides 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

Thatcher

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

troubles.

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

company's fortunes.

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.

gregory.palast@o...



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