By Hillel Aron
By Joseph Tsidulko
By Patrick Range McDonald
By David Futch
By Hillel Aron
By Dennis Romero
By Jill Stewart
By Dennis Romero
As our new president and vice president see it, California‘s power crisis is simply what happens when government meddles with the iron laws of supply and demand. If the lamps are going out all over Eureka, if Silicon Valley is flickering at twilight, it is simply because Californians have been too damned finicky about their air quality to build the power plants they need. Over the past few years, after all, demand has been soaring as the state has recovered from the deep recession of the early ’90s. The solution, obviously, is more supply -- and if that spoils some wildlife reserve or raises the shmutz-quotient of our air, well, that‘s just the price of economic growth.
If we are in a crisis of supply and demand, though, why are the lights still on here in L.A.? After all, no part of the state saw its economy dip so low in the early- and mid-’90s as Los Angeles, where the end of the Cold War fairly halved the size of our then-largest industry, aerospace. And nowhere has demand grown more, as the local economy has turned from bust to boom, than here in Los Angeles. We consume power like nobody‘s business: L.A. today is home to the greatest concentration of manufacturing in the nation, and, come to think of it, we stay up nights a lot later than they do in Turlock. If California is truly experiencing a wave of underproduction and overconsumption, Angelenos should be just now lighting their candles and cursing the darkness.
Instead, we’re still shooting lights across the sky at the premieres of third-rate movies. For what California is confronting is a crisis not of supply and demand, but of deregulation, of free-market mania, of ideology run amok. That the lights are still on in Los Angeles is pretty good evidence that publicly owned power companies such as our own DWP can keep the lines humming, even as deregulated private power companies can plunge a city into darkness if their profit margins are too low.
Consider, for instance, how our other local power company, the investor-owned Southern California Edison, chose to allocate its revenues over the past several years. The state has just completed an audit of this model corporate citizen, and discovered that of the $7 billion that SoCalEd took in over the past five years from the good ratepayers of Orange County and the San Gabriel Valley and the other parts of the L.A. area not serviced by the DWP, it forwarded $4.8 billion to its parent company, Edison International, which paid out $1.6 billion in shareholder dividends and used $2.7 billion to buy back its stock. While the DWP was keeping its rates low and creating cleaner and more efficient generating and transmission facilities, Edison simply “took the money and ran,” as state Senate President John Burton put it.
Worse yet, Edison was taking money out of the community that had been guaranteed it by the terms of the state‘s deregulation package, which fixed the rates that Edison here and PG&E in Northern California could charge their customers. This was not a ratepayer-protection provision, though it has been widely reported as such by innumerable editorialists chastising the state for coddling its consumers. To the contrary, it was designed to keep the utilities’ revenues higher than they otherwise would have been, since wholesale prices were so low. The rate was fixed not to keep it from rising above what consumers could afford, but from falling beneath what the companies wanted. And -- until wholesale prices moved upward last year -- that‘s precisely what it accomplished.
The editorialists thundering that California’s consumers have been unnaturally sheltered from the market, then, have it backward. For four years, consumers paid more so that Edison shareholders could thrive. And now that the crisis has hit, consumers are being asked -- well, to pay more so that Edison shareholders can thrive.
And thrive they will. On Monday, the Legislature began to craft a bill that would have the state issue bonds that would fund its going into business to purchase power from generators, that would fund the utilities‘ repayment of debt, and that would authorize them to raise their rates. And on Monday, not coincidentally, brokerage houses told their clients that it was safe again to buy PG&E and Edison stock.
Indeed, word of the pending bond issues was good news for Wall Street not simply because it meant the investor-owned utilities were viable again. For one thing, Wall Street makes money on bond issues: In 1996, the last bond issue for California’s utilities brought in a cool $46 million in broker fees for investment bankers.
For another, the bill that is currently taking shape does not present the kind of ideological challenge to Wall Street that, for a time, it looked like Sacramento was prepared to mount. For the past month, Gray Davis and the topmost legislative leaders, Assembly Speaker Bob Hertzberg and Senate capo Burton, have all endorsed (Burton avidly, Davis tepidly) the establishment of a state public power authority, with generating and transmission facilities of its own. After all, California is home to 30 such authorities at the municipal level, of which the DWP is just the most conspicuous, all of which had been able to provide uninterrupted power to their consumers, at lower rates than their investor-owned counterparts, during this time of alleged scarcity. Precisely because such companies don‘t have to meet the profit projections of their institutional investors, they’ve been able to keep the lights burning.