|THE BIGGER THEY ARE, THE HARDER THEY FALL: THE LAST DAYS OF PG&E AND EDISON
By Daniel M. Berman, January 20, 2001
Sometimes Republicans say the darndest things. On January 4, 2001,
Commissioner Richard A Bilas of the California Public Utilities
Commission-- while voting for a 10% electric rate increase-- made the
As a free market economist it is difficult to recant and utter these
sentiments. I do so because I do not see true competition in the
market and because our market surveillance economic experts assert
market manipulation must exist to cause these unprecedented prices.
I am deeply troubled by the lack of power this Commission has to go
after the culprits in this scenario which, through their collusion,
are bringing the utilities to the brink of insolvency and the
reliability of the electric system to the edge, at great cost to
consumers. To paraphrase Adam Smith, never do men of the same trade
get together when they do not do harm to the public. It must be
stopped. Those generators making windfall profits at present have no
incentive to curb their behavior. After long reflection, I must
conclude that the surest way out of this dilemma is for the
Legislature to immediately establish a California Power Authority to
set the rules of the game and to have the power of condemnation at
fair market value over all state generation. Calls for behavior
modification have not worked. Action must be taken.
When Commissioner Bilas spoke the prophetic word "condemnation," the
audience gasped and then broke into applause. Until that moment he
had supported deregulation to the hilt. He later stated, according
to one source, that he supported the idea of excess profit taxes if a
fair price could be determined.
But Professor Bilas wasn't the first Republican to say the darndest
things about the electricity business. Decades ago Republican Senator
George Norris of Nebraska told the New York Times: "Some kind of
monopoly is necessary to get the most out of [electricity]. If
privately owned, it might be operated for a time by public-spirited
men. But it is human nature to get the most it can out of such a
situation. Eventually it would come to tyrannyŠ.I've been called a
Communist, a Socialist and some worse things. I'm nothing of the
sort. I believe in our own government. I want to protect our people
in the enjoyment of those God-given things that are intended for the
use of all the people. If public ownership is the proper thing I
don't hesitate to accept it, whether you call it socialistic or not."
So far no one is accusing Commissioner Bilas of being a Communist,
but many elected officials, such as Ventura County supervisor John
Flynn, outraged by the depredations of the power cartel, are
beginning follow his advice, as the price extortion continues and the
rolling blackouts have begun.
It has now become obvious that PG&E and Edison will go bankrupt
because the ratepayers, as Governor Davis' pollsters have been
telling him for months, will not stand for the 70% increase it would
require to prop them up under the present crazy structure. Already
public power advocates, Democrats, Republicans, and Greens, are
beginning to organize for public power solutions.
Last week, according to the Wall Street Journal, PG&E Corp. secured
permission from the Federal Energy Regulatory Commission to create a
new subsidiary called National Energy Group, to protect its
profitable power-trading and merchant generation operations, while
saddling the regulated subsidiary with $6.6 billion in new debts,
many of them owned to the parent holding company. What the utilities
are demanding, after all, is another $20 billion, after collecting
$30 billion for their nuclear debacles and other "stranded costs"
with the passage of AB 1890 in 1996.
Lacking a public power agenda, Governor Gray Davis has been unable to
imagine an alternative to the rapacious Confederate Cartel of
Southern, Reliant, Dynergy, Duke, and Enron---and the Pacific Gas
and Electric Corporation and Edison International (the holding
companies that own the PG&E Co. and Southern California Edison, to
which most Californians pay their bills). His failure of political
imagination echoes the failures of almost all governors and
legislators in the past.
To escape this bind he should take lessons from Franklin D.
Roosevelt. As governor of New York, FDR noticed that electricity
cost $19.50 for a typical 250 kilowatt-hour bill in Albany, but only
$2.79 across the border in Ontario. So he created the New York State
Power Authority-along the lines of Ontario Hydro-to reduce the
disparity. On September 21, 1932 he delivered a major address in
Portland in which he asserted that governments have the "undeniable
basic right, " which applies to local as well as state and federal
authorities, to set up "governmentally owned and operated service"
as a "national yardstick to prevent extortion against the publicŠ."
As president, Roosevelt went on to pass the Public Utilities Holding
Company Act, which is still our sturdiest bulwark against the abuses
of the power cartel, and to create the Tennessee Valley Authority,
the Bonneville Power Authority, and the Rural Electrification
Administration, which brought electricity at reasonable prices to
millions of people in vast regions which the private utilities had
refused to serve.
To this day, public ownership means lower rates and better service.
This January, a typical PG&E residential customer will pay $59.40 for
500 kilowatt-hours of electricity, compared to $36.89 for a
Sacramento Municipal Utility District customer. Average electric
bills in San Diego for 500 kilowatt-hours almost tripled under
deregulation-from $51.60 in August 1999 to $138.50 in August 2000.
By comparison, bills of the Los Angeles Department of Water and Power
have stayed stable at just over $50 for the same months, and they
remain stable to this day.
The poverty of political and intellectual discourse in California is
demonstrated by the fact that even now, eight months into the present
crisis, caused by a ruthless cartel's exorbitant demands and
engineered "shortages," the issue of public ownership and democratic
governance is only now beginning to be taken seriously by state
policymakers. Public power is not a respectable object of university
inquiry, even at the much-touted energy programs at UC Berkeley,
where the topic has been totally ignored, as Upton Sinclair first
pointed out in his 1923 book The Goose-Step: A Study in American
Education. All we have about is "market signals" and "appropriate
pricing mechanisms" from our professors. Harvard and MIT are
identical in this regard. Is it conceivable that utility influence
over our magnificent universities is the reason?
At our regulatory bodies, nobody has been minding the store for
years. Two consecutive anti-government and anti-regulation governors
have left public service in a shambles, which the Governor Davis is
trying, in small ways, to reverse. The California Public Utilities
Commission, despite its "missionŠ to assure consumer access to
universal, reasonably-priced, safe, reliable, and environmentally
sound public utility service while contributing to the economic
prosperity of California," keeps no records on rates of public power
entities like SMUD, LADWP, and Roseville. When asked why not,
Commission functionaries invariably reply, "We don't regulate public
power." To their credit, the Davis appointees to the Commission have
been making a valiant effort to figure out the financial roots of the
crisis, but it all seems to be too little too late. And the
Governor, despite a number of applications from distinguished
candidates, has yet to appoint a director of the Office of Ratepayer
Advocates at the CPUC.
What action should Governor Davis take to deal with the present crisis?
He could start by taking Commissioner Bilas' courageous advice and
condemn the state's generators. While a fair price is being
determined he should pass a law that reregulates the generators by
requiring them to file tariffs and sell their electricity at a
reasonable price. By that we mean cost plus a fixed profit---not the
34.4 cents per kilowatt-hour recorded in December's PG&E bills, for
electricity which costs three or four cents to produce.
He should then go on to take the following steps:
… Create a California Power Authority to operate the generation
plants at cost, with supply priority being given to public power
entities like SMUD;
… File a bill to create an excess profits tax to get back the
extorted revenues, as Prime Minister Tony Blair did against the
gouging English generators;
… Remove the barriers to the creation of publicly-owned systems, and
establish a fair and rapid system for valuation of utility properties
that are condemned;
… Declare that there will be no service cutbacks and no layoffs of
operating personnel at the properties now under state control or
regulation, and that union contracts will be honored;
… Ban utility money from politics.
… No bailouts. If the state continues to finance the utilities it
must make them give up real assets, dollar-for-dollar with interest,
such as PG&E's hydro system;
… Institute the "five percent solution," which would set aside five
percent of utility revenues for conservation and energy efficiency
and enforcement of Title 24, the energy-efficiency building code;
… Solar electric panel (photovoltaics) and solar water heaters (as in
Israel) should become mandatory for all new building and any
substantial retrofits. The International Brotherhood of Electrical
Workers has already begun to train their construction apprentices how
to install building integrated PV panels. What we need is a million
solar roofs, and 100,000 new solar jobs, not 20 new power plants,
fired with high-priced natural gas.
The logical go-to person for such an ambitious program is David
Freeman, general manager of LADWP, and former head of SMUD and the
Tennessee Valley Authority. He is one of the few people in the
United States with the background and the chutzpah for such a
critical mission. And since he is a public power person, he won't
sell the state out to the energy cartel.
If he does these things we have outlined, Governor Davis will
infuriate Wall Street, Montgomery Street, and Wilshire Boulevard.
And he will become a hero to the millions of forgotten Californians
whose interests have been trampled on. Time is of the essence. That
great sucking sound you hear is the sound of a billion dollars a week
leaving the state for the coffers of the Confederate Cartel and the
parent holding companies of the regulated utilities, which have now
inserted a siphon directly into the state treasury. How long will it
take for the state to follow PG&E and Edison into bankruptcy? The
alternative to public power is to turn the state over to the tender
mercies of the Confederate Cartel, which has already established a
consortium to bid on the state's transmission system.
There is a rumor that Governor Davis would like to be president of
the United States. But campaign funds won't be enough. To win
re-election in 2002, so he will have to fight the energy cartel and
promote a public power solution to the crisis. But to do that, he
will have to confront all his past beliefs and habits of thought and
imagine a future without PG&E and Edison, even though he, like almost
all of California's politicians, has accepted their money and support
since he began in politics. (He could start by learning to think like
James McClatchy, the founding publisher of the Sacramento Bee, "who
fought monopoly and utility pirates wherever he found them."). And
the Governor will have to take his campaign to the people and explain
what he is doing and why, in his own fireside chats. In so doing he
will find, to his astonishment, that the people will adore his
courage and back him to the hilt, even if he loses the first few
The final words of his speech launching the California Power
Authority and the rest of his public power program might read as
follows, with a nod to Franklin D. Roosevelt's ghost:
"To the people of California I have but one answer on this subject.
Judge me by the enemies I have made. Judge me by the selfish
purposes of the millionaire utility executives and public utility
commissioners who have extorted tens of billions of dollars from your
pockets, doubled the price of electricity, and sabotaged our solar
future. My friends, my policy is as radical as American liberty. My
policy is as radical as the Constitution of the United States. Never
shall the State of California part with its sovereignty over its
power resources, while I am Governor of California. Just as war is
too important to leave to the generals, energy is too important to
leave to the energy cartel."
Daniel M. Berman is the co-author (with John T. O'Connor) of Who Owns
the Sun? People, Politics, and the Struggle for a Solar Economy. He
lectures on energy, labor, and the environment and co-founded the
Coalition for Local Power in Davis.