When I started this page, I never expected to encounter the level of corruption that the story below brings out...
Here are some shortcut links to the more important findings along the
- January: half of PG&E is losing money, the other half is making tons of it
- usage during early blackouts was lower than it was a year earlier
- SoCalEd admits high prices not caused by insufficient supply
- April: PG&E demands immunity from losing money as generator industry airs lies in radio ads
- Dick Cheney claims conservation is pointless and doesn't help
- public officials finally make open accusations of holding back power to drive up prices
- graph of gigantic growth in generating capacity kept idle
- June: first drop in prices as countermeasures begin to bear fruit
- FERC notes that price caps have driven costs down despite Republican predictions otherwise
- court finds that price fixing was not illegal
- Duke Energy employees blow the whistle, under oath!
- GAO finds FERC's investigation of price fixing was bogus
- FERC judge makes bizarre ruling: California owed miniscule refund
- natural gas price gouging: accusations fly between companies
- Legislature goes for SoCalEd bailout
- October: PUC repudiates Davis's long-term contracts
- San Francisco ballot measures to establish a public utility
- Ballot measure loses, barely
The Enron scandal which followed after the California power crisis is covered in a new page here. That page is being continually updated; this one is now historical.
"The California crunch really is the result of not enough power-generating
plants and then
not enough power to power the power of generating plants." -- George W. Bush, 1/14/01
By the way, the guy running the "nearly bankrupt" PG&E, Robert Glynn, is being paid two million dollars a year, and many of the other top executives are paid on a similar scale. How many layoffs could have been saved with some of that?
Remember how this mess was created: the deregulation law they passed was essentially written by PG&E and SoCalEd. The way they got into this situation was by being given exactly what they asked for.
All the anti-deregulation liberals like Molly Ivins and Ralph Nader are now going "I tooooooold you so", of course... which should help avoid a recurrence in the near future in some other industry, I hope.
The question we need to have answered is, how much of
this crisis is a real case of demand outgrowing supply, and how much is
basically an artificial shortage? Well, it's pretty clear that the
shortage is not a matter of skyrocketing demand. The number of power
plants recently offline for "needed maintenance" is about four times the
previously typical rate.
I'm finding it surprisingly difficult to get any clear figures about how much electricity was actually used in the last few months. And many of the figures available are uncertain estimates, not solid measurements. Why on Earth would we have only rough approximate data for the last two years, with solid figures available only for 1998 and earlier? Surely somebody in the system has got up-to-the-minute numbers... Anyway, I eventually found something, though hardly in easily reviewable form, and here are some scraps I got from the Independent System Operator:
Highest peak rate of power flow through the Independent System Operator in 2000:Clearly, the current crisis is not a matter of exhausting our generating capacity. Such a crisis will certainly arrive in time, since we have been building generators at a lackluster pace and the state has continued to grow rapidly and buy tons of appliances. The possibility of electric cars soon coming into wider use will also mean we have to build generators soon. This is the perfect time to start construction on some new renewable power supply systems, as well as on the cleaner types of traditional power plants, e.g. natural gas burners. One cool thing about gas burners is that they have relatively little economy of scale so they can be built in any desired size.
43.8 gigawatts, on August 16.
Highest peak rate of power flow through the ISO in 1999:
45.9 gigawatts, on July 12.
Peak ISO load for the week in January 2001 when rolling blackouts hit:
31.7 gigawatts. Note how much lower this is than the summer peak.
Peak ISO load for the corresponding week of January 2000, when there was no crisis:
But this coming crisis is not what's starving us of electricity today. What's causing it now is generators that aren't being run. The power companies say they are holding nothing back and they are generating the most they can, but many think they are lying and some have filed suits making that allegation. It may be that there was just a rash of equipment wearing out, which when combined with scant rainfall for the hydro plants caused the utilities to be caught napping... but I find this a bit difficult to swallow. Who is telling the truth? Hopefully the evidence will come out soon, in court or at least in the media.
Either way, the utilities don't deserve a single dime of bailout. They want their consumer rates sharply raised for three months -- we should lower their rates for three months. Then they'd face a choice between cutting off our power and claiming they had no choice, at which point they'd basically be seized and taken over by the state... or moving some money from their right pocket to their left, and admitting they're not broke.
The governor and legislature seem willing to sit still for extortion... so far. I hope PG&E and SoCalEd are getting the message that if they push much further, they could find their core assets taken over by the state. They have already lost the deregulation package they worked for... everybody expects the legislature to now undo much of the deregulation package.
But there is one part of the deregulation plan that we have got to keep. That's the one that lets consumers select which power generation company they buy their juice from. Instead of trying to force the big utilities to use renewable generation, those of us who care can now directly buy from renewable power companies, like Commonwealth. I think this will do better at getting renewable power generators built. The competition on that level should also help bring prices down and hopefully get more companies involved in building power plants. If we look at the deregulation of long distance phone services and the breakup of AT&T, one conclusion that we can reach in hindsight was that the sudden construction of new redundant long distance networks helped save our asses when, over the next decade, there was an unprecedented boom in demand for bandwidth. Since California's demand is going to be rising, we'll be better off with more companies investing in providing power.
As for the traditional utility companies that distribute the power... they are still monopolies, and we might well be better off if we simply de-privatized them. The state may not be able to manage that, as far as political feasibility goes, but any city or district can set up a municipal utility to distribute local power in a non-profit way, and those that do this typically have cheaper rates. Some of them even seem to be rather exempt from the shortages and blackouts we've experienced.
President [sic] Bush has offered his ideas on how to relieve the state's power crisis. His suggestion: get rid of all the environmental regulations. Let power plants emit unlimited smog and other waste, drill for oil in protected areas, and so on. He had nothing else to offer, except the option of just raising the consumer prices to where the distributors aren't losing money any more.
That buffoon's biggest campaign promise was to be a uniter, not a divider, yet what he's doing in his first days in office is the opposite. Every action he's taken so far has been about pleasing the interests of the right, not the center, despite the complete lack of any mandate for a rightist administration. And on the energy issue, note that he is not only from an oil-money family, but some of his biggest campaign contributors have been Texas power generating companies like Enron. It's a good thing he's a federalist who wants Washington to stay out of California business, because if he proposed a national-level remedy, it would probably be right in line with the utilities' vision of how a mixed public/private business like theirs should work: any profits are private, and any losses are public.
That's still what they're trying to get from us, Bush or no Bush: a deal where they can make money but only we can lose money. I don't know yet whether they deliberately created this shortage, but if I am going to believe a conspiracy theory, it seems possible that they set out to create an artificial shortage and then got bitten in the ass when it became more severe than planned, due to things like lack of rainfall. Because if they had hoped to extort higher rates from everybody, they've overreached themselves -- if they thought the state would never let the utilities end up in bankruptcy court, they could well be wrong now. Or maybe this is exactly the degree of shortage they planned but they underestimated the effects. Either way, everything they hoped for could well go down the toilet now, with far less of the power distribution system in private hands. And that could be a very good thing.
Deregulation of power production was supposed to stimulate new investment in generators, and in time it still may, though the short term effect was largely to kill off investment during the deregulation transition. But no normal deregulation scheme will stop the utility companies that distribute the power from being natural monopolies. They need to be either regulated, or not private companies at all... or so deregulated that any one house can plug into any of half a dozen different power grids. The latter possibility is one that I doubt the free market can ever bring about, no matter what the regulations say or don't say.
ANOTHER UPDATE: PG&E is now proposing that all the generators they owe money to should be paid only 19 cents on the dollar, even with the money they are getting from Gov. Davis's plan to buy their main transmission lines for $10,000,000,000. I figure that since PG&E basically engineered the system under which they ended up owing so much, they'd better pay in full. They can use the money they raised from their own generators -- the money they are now pretending they don't have. Time to start selling off the power companies they bought up in countries on the other side of the world with their profits. Sacramento protest actions are being carried out to try to get the legislature to stop colluding with them and start holding them accountable like any normal private business would be.
The reason for this is that the "deregulated" market is actually set up to be noncompetitive. The pricing system works like this: people who want wholesale power bid for a price to be offered to the generators, and the highest price bid to any generator becomes the price paid to all generators by all customers. I think this is what Ebay calls a "dutch auction". The effect of this rule is that generators are unable to compete by underpricing each other! Every generator has the means to drive prices up (by holding back on supply) and all benefit, whereas nobody benefits by any price cuts. Far from "deregulation" being curable by restoring more centralized government control, this particular mess could actually be resolved by deregulating further, and getting closer to a true free market. They have taken a partial step in this direction by removing the rule they had against long term price contracts, but it hasn't affected a large enough portion of the market.
The peak system load on Easter Sunday was under 25 gigawatts,
according to the ISO's OASIS
database. The nominal generating capacity in the state, if every
single plant is running at max, is around twice that much!
I just heard a radio ad for some independent power company (either Mirant of Georgia or Merit of Texas, it's hard to tell on radio) that told us straight out that the crisis was entirely because of a shortage of generators, which they are working to rectify. That's an outright lie, of course; there is no shortage of generators. That nine percent reduction in demand is proof, if you didn't believe it before. If this market were operating competitively, a nine percent drop in consumption would make prices fall below where they were last year... maybe even down to the levels they pay in other states. (California's electricity has been overpriced for years, largely due to the utilities trying to get back all the money they lost on ill-conceived nuclear projects.)
There's some kind of regulatory meeting coming up shortly that may, or may not, re-exert some control over the price problem. We'll see.
Meanwhile, PG&E's parent company -- the one which during the early phase of the crisis was making record profits while protesting loudly about how much money the PG&E distribution subsidiary was losing -- has now posted a loss for the quarter just past. Good, I say -- this means we're making some progress. It's a huge, record loss, they say. How huge? Four billion dollars. They must be desperate, right? Wrong -- they wouldn't be in any danger of really being broke until the losses added up to forty billion. They aren't undergoing anything more stringent than families handle all the time when dealing with a layoff or a big hospital bill. It's not much of an excuse for defaulting on their tax bill.
PG&E is insisting that they must and shall eventually get their four billion dollars back from the ratepayers. They honest-to-god think they have a right to make a profit off of us, regardless of circumstances! They seem to think because they're some kind of essential public service, they should be exempt from the risk any normal company takes of losing money sometimes. It would make a lot more sense to say that because they are providing an essential public service, they have no right to keep any extra profit at all -- as is exactly the case in those cities and regions that have public power companies. These cities, you will recall, have been largely exempt from the crisis -- no blackouts, no extreme price gouging, no problem at all.
This crisis is an excellent opportunity to simply get rid of the for-profit power distribution company for good. Because it is a near-absolute monopoly, it only made economic sense when the prices were controlled by a public agency. The experience of those cities with municipal non-profit power companies show that they do as well as we do, or better, in all areas of electricity availability, reliability, and cost. The for-profit nature of PG&E is benefiting nobody but PG&E stockholders. The money we pay that goes to their profit margin is a needless expense that turns out to be bringing us ratepayers no benefit whatever. The only justification for paying it is the common assumption that a government bureaucracy must be inefficient compared to a free market company. But PG&E is not a free market company, it is a monopoly, and long before this crisis it has already shown itself unable to do as good a job as nonprofit public companies at keeping power prices down and service reliable.
PG&E is now in bankruptcy court. They, of course, hope it will be a tool to protect the assets they still have and eventually get all the money back. But with luck, the bankruptcy court could bring about some big steps toward ending the private monopoly. Already, the infrastructure for large-scale movements of power is increasingly in the hands of the state government, and hopefully many more cities will create municipal power districts. The more capital assets we can buy up from PG&E while it is in this crisis, the less they will be able to gouge from us in the future. We should buy up as much of PG&E's system as possible while we have the opportunity.
As for the generating companies, they can be dealt with simply by changing the rules to make a genuinely competitive market, rather than the current system in which whoever manages to run their price up a bit allows everybody else to get that same inflated price. No legal action against them is particularly needed. Sure, they sold PG&E a lot of electricity at a spot-market rate of ten times the electricity's cost, but a lot of them never got that money, and may only get part of it from the bankruptcy court. The long term problem of gouging by generators is probably the simplest part of the whole crisis to resolve, and shouldn't have to worry us too much.
In fact, the puzzling aspect is why that hasn't been fixed already. Exactly who is standing in the way, and what are they being paid for the service?
Normally, when you try to use price caps to push prices below the heights that the market has pushed them to, you can make the shortage worse. But in this case, since the artificial market structure created by the California "deregulation" law is written to strengthen the incentives for creating artificial shortages while removing the incentive to lower prices in order to gain market share, a price cap can actually take away some of the motivation to hold back on production. (There is still some, because the caps can only be triggered if there is at least a Stage 1 alert, which requires a mild shortage.)
The people announcing the price caps actually said they expected it would help reduce blackouts, but nobody would spell out why. Nobody in a position of public authority seems quite willing to say that the shortages are entirely artificial, no matter how well they know it. Or maybe they did but the media just didn't cover it...
Unfortunately, there is a "poison pill" section in the FERC ruling which has the governor upset: in exchange for price caps, it takes away much state control of the business and hands it over to some multistate regional body.
Price caps set by a legal agency are a terribly crude blunt instrument which very often do more damage than good... but I suppose they are the tool that's available in the short term. Or is it? It seems to me that it would be hardly any more difficult to change the "deregulation" law that creates this artificial wholesale market in the first place. If we simply restored genuine competition in the generation market, the soaring prices could be cleared up remarkably quickly. I would hope that the FERC ruling can't actually stop that from being done -- I very much doubt it would, since other states have avoided this situation.
Or perhaps I am underestimating the corruption of the California legislators who set this up in the first place, at the utilities' bequest.
Anybody who thought that Cheney's ties to the oil industry were something he could rise above will have to admit disappointment. I'm afraid Cheney's degree of impartiality when it comes to money is no more than one would expect -- no more, that is, than business as usual when any Bushes are around.
The truth of this accusation is so clear that I don't think they can get away with denying it forever. Lynch says she'll be talking with the Attorney General about what kind of legal action they can take.
The PUC recently made their decision about how to apportion rate increases. The utilities got a rate increase of a little over 40%, but public outrage was so high that the PUC didn't dare just raise everyone's rates. What they did was put almost all the rate increase for residential customers onto those who use above average amounts -- large surcharges for usage more than 30% above your "baseline" allocation. The baseline is, roughly, the amount of electricity they expect is reasonable for you to use. Usage below the baseline level has always been priced lower than usage above the baseline. On my last bill I used barely more than half of my baseline amount.
On the same day, PG&E Corporation (the parent company of the distribution utility that is in bankruptcy court) told its shareholders that they are going to be building several new generating plants outside of California. Why? To "enhance shareholder value", of course. Leaving aside the weirdness of avoiding California as a place to build, this sure doesn't sound to me like the actions of a company that's in agonies of going broke.
Yesterday morning, "president" Bush gave a speech announcing his new energy policy package. The speech was classic Dubya: as always, when speaking about any subject where the Republican position is unpopular, he starts sounding like a Democrat. About half of the speech was about the minor aspects of the package that would sound good to environmentalists and leftists -- talking about the niftiness of cogeneration, experimental solar houses, hybrid-electric cars (without mentioning that they're all Japanese at this point) and even tax credits for developing renewable energy supplies, as if we'd elected Jerry Brown instead of a Bush. (When Jerry was "governor moonbeam" he created such a tax credit.)
As I type this, Dubya is speaking again, at a showcase environmentally-friendly hydroelectric dam, about conservation and higher mileage cars.
But the core of Bush's package is to drill more oil and natural gas, and to build more refineries. After lots of talk about environmentally nifty stuff, he started getting into the dubious part: he talked about "clean coal", he claimed that it is now possible to do oil drilling with no environmental impact at all, and he praised nuclear power, calling it clean, efficient, and "even more" economical than it used to be. (Ha -- nuclear plants are the reason Californians were paying 13 cents a KWH before the crisis started! Wind power may be irregular, but it costs only a quarter as much.) He pointed out that nuclear plants produce no greenhouse gases, while ignoring how much new greenhouse gas the rest of his plan would produce.
Correction: he didn't praise nuclear power, but "nucular" power. That's one time when you can't say he sounded like a Democrat. He sounded, to be exact, like J. Danforth Quayle.
(I wonder if he actually knows perfectly well how to pronounce it, and misspeaks that way just to sound down-home to his old Texas constituents. Some Texans who have followed his career say that he actually doesn't have a Texas accent at all, and only began faking one in middle age when he started getting into politics.)
Environmentalists and Democrats have been quick to go over the proposed plan and heap scorn on the idea that it's at all environmentally friendly. The Democratic National Committee is calling it a "special interest protection plan" on GrandOldPetroleum.com, a site they put up which, among other things, documents that both Bush and Cheney have a history of favoring steps that raise oil prices. Dick Cheney even praised OPEC for cutting production.
Though the main thrust of the Bush plan is about consuming more fossil fuels, the other parts of it -- window dressing though they may be -- are still worthwhile. Maybe Congress can boost some of those other parts and tone down the drilling parts a bit.
Another item: a few days ago White House spokesman Ari Fleischer stated the administration's opposition to price controls for California electricity, on the grounds that price controls only reduce supply and increase demand. That is true, in a competitive market. But California's market is not competitive, it is artificially structured under "deregulation" to have strange rules for price setting. When looked at by non-politicians, the conclusion is that price controls could actually reduce blackouts. This sounds senseless when it's not explained, but the reason (generally unstated in public) is that the blackouts are there is because there is an unnaturally strong price incentive to withhold electricity. If we take away the incentive by capping prices, the only way for a producer to make more money with electricity is to generate more of it. A far better solution, of course, would be to restore something resembling genuine competition in the power generation market. But no politician, as far as I've heard, has even hinted at moving in that direction yet. They'll have to abandon the current "deregulation" system, but what they'll come up with in place of it is anybody's guess.
TURN, the utility consumer protest group (www.turn.org), has a plan for a consumer-owned utility network. I think I might join their outfit.
|July '00||2.23 GW|
|August '00||2.43 GW|
|September '00||3.62 GW|
|October '00||7.63 GW|
|November '00||10.34 GW|
|December '00||8.99 GW|
|January '01||9.94 GW|
|February '01||10.90 GW|
|March '01||13.74 GW|
|April '01||14.91 GW|
In graph form:
Such extreme amounts of generating capacity all being shut down at once was unheard-of before "deregulation".
Some midwesterner just sent me an email laughing at us "tree huggers" who are going to be sitting in the dark. But if we keep building a bunch of new generators in response to this artificial shortage, and then clear up the legislative errors that the generating companies are taking advantage of, removing the incentive to hold back on production... we'll actually have a surplus when some other states start to outgrow their own currently stagnant supplies.
A news item this morning mentioned that sales of solar cells are booming. The more that sell, the more economical the future supply will become. Especially if "black silicon" eventually becomes a workable mass production idea. A big solar cell business might eventually bring back to California a lot of money that left it this year.
Here's an excellent article on, of all places, salon.com which reviews the whole history of how the power debacle came to be. One essential point it makes is that, though nobody involved in creating the deregulation scheme foresaw any shortages, the independent generating companies who later profited from it did see early on that they had an opportunity to benefit from an upward price spiral. When PG&E started selling off its fossil fuel plants, these independents snapped them up eagerly at above-market rates, seeing that California would soon have high demand for more juice. Generator construction had been slow for years, but at that time (1997 or so) California still had a surplus. Everybody in the existing system assumed that the new "competitive" wholesale market would push prices lower. Outsiders like Enron and Merit and Duke knew better. And just in case, they got plenty of lobbying power in place and managed to hold off measures that would have actually produced more power or allowed lower prices. If you think the only people lobbying against power plant construction have been tree-huggers and NIMBYs, you're mistaken.
While we're on salon.com, I notice that even Ariana Huffington has decided that this mess is proof of the corrupting influence of corporate campaign contributions. She's kind of vague on exactly what was bought, though.
One group of companies that have been hurt by the mess is the retail resellers of renewable power. The wholesale rates for renewably generated electricity are just as inflated as those for fossil fuel electricity -- up to 25 times pre-crisis prices. Much of the renewable generating capacity is now owned by the same bandit companies who are overcharging for fossil fuel power. For instance, several years ago the wind farms in Tehachapi were bought up by Enron. (So much for the idea that wind power doesn't pay.) This may do a lot to stifle consumers choosing to buy green power, which for a while was actually cheaper than conventional. The rush to build conventional plants now, which could lead to surpluses again in five years, might finish off green power for a long time as prices tumble (assuming the legislative errors are fixed by then). Without this crisis, we could have seen a steady growth in green power production and consumption.
Some have been saying that we have a shortage because environmental rules and so on have forced existing generators to shut down. I went through the list of permanently retired generators in the state and found that the total capacity involved is about 4 GW -- only a quarter of the amount of generating capacity now offline for "maintenance", and far too small in itself to create a shortage. Furthermore, I found no preponderance of smog-producing plants on the list. It included a number of older renewable power generators. It included some oil-burners. But the biggest sector was two aged nuclear plants -- San Onofre and Rancho Seco.
One further note: Somehow the idea has gotten around pretty widely that California voters created this mess with a ballot initiative. They did not. (Here is a database of old California propositions where you can check such questions.)
I heard a story that we apparently achieved an 11% rate of power conservation for the month of May. So much for those who said we would never meet the goal of 10% by summer.
I heard another story that PG&E has increased the lucrative bonuses paid to its top executives, despite wailing about how much money they've lost. Are they, as they claim, trying to hang onto the best possible talent during hard times... or are they just salvaging what's left for themselves? The stockholders won't like that...
Considering what an incredible level of blundering PG&E has shown in this whole period, it's pretty funny to hear them call their leaders "top talent". After getting whipsawed so badly by the people they sold their generators to, you'd think they'd be less than eager to hang onto this management team.
June 7 or so: the governor is now taking credit for the fallen prices and says the state's efforts are bearing fruit.
June 12: the gov has signed an exemption to allow natural
gas powered generators to have an unlimited pollution allowance for this
summer, as long as the power is not sent out of state. Though this
is not something I approve of in general, it should help put more of a
squeeze on those who are holding back on generation. The more that
those who are willing to run their generators can produce, the less ability
the others will have to jack prices up by holding back on supply.
We need to make sure that this doesn't get used as a long term solution.
Price caps by FERC are back on the table for discussion. The Republicans insist that price caps will only reduce long term supply by removing incentives to build generators... but under the current system, the chance to get inflated prices is the main incentive to not add generating capacity. People from FERC itself are saying that the limited emergency price capping system they've implemented so far has proven itself to be helpful; wholesale prices started to decline, gradually but significantly, after they were put in place.
The Governor has released the long-term contracts signed a couple of months ago in an attempt to undermine the volatility of the spot market. Some were quick to jump on them with criticisms, but most are saying that it's far too soon to tell whether the state got a good deal or a bad one. Which means they probably did all right; trading increased risk for the long term future against decreased risk for the shorter term is exactly what was intended, and if nobody can tell yet who the likely winner of the gamble is, that probably indicates the rates were pretty fairly picked.
Despite opposition by the White House and the GOP (some say those letters stand for Gas, Oil, and Plutonium), it looks like broader FERC price controls may be getting nearer. However, a wave of hot weather has brought back the threat of blackouts this week (June 17). When full summer heat hits, we may be in the grip of a genuine shortage, with prices high even with the generators not being kept offline. Whether we can reestablish normal conditions in the fall will be the big test of any new policies. But that can be forestalled by conservation. If our usage remains down from last year -- as it has been so far this spring -- then any summer shortages we face will probably not be authentic.
I just heard a topical song yesterday that included these lines:
A recent letter I received says, "California's reliance on natural gas powered generation is somewhat misplaced as can be demonstrated by the wild price swings experienced by natural gas across North America this past winter due to short supply." This begs the question of whether natural gas shippers are playing the same games that generators are, to jack the price up. I have heard at least one source claim that this is the case, but I am as yet too uninformed to know whether that accusation has any validity. It sure wouldn't be surprising.
Another letter mentions an idea for everybody to protest by turning off all their power on June 20. Unfortunately the first I heard about it was on the 19th.
June 21: Jeffrey K. Skilling, CEO of Enron since February, spoke in San Francisco. Protestors failed to sneak a pig into the building, but one of them did succeed in getting him in the face with a blueberry pie. (This is a protest tactic of which I heartily approve, and I hope to see it become more widespread. But blueberry?) Skilling's message, oddly, was rather similar to what I've said above: that California's crisis is a regulatory error and all the price problems could be corrected by just allowing a genuinely competitive open market. Of course, he did manage to deny that any portion of the blame fell on him or his company, which despite all regulatory errors, is hardly a defensible claim. The regulatory error did not create the shortage, it only created the financial motivation for people like Skilling to actually create the shortage. Skilling emphasized that this mess has been bad for all parties, and said they would have had to be really stupid to have engineered this situation deliberately. I have my doubts about that.
Governor Davis is now demanding that the federal government coerce the generators into paying refunds. That might not necessarily be a terrible idea, but I really don't think we're going in the right direction by trying to fight the system with coercion. It's very difficult to really control undesired behavior of a market without eventually killing the market as a whole, thereby ruining those parts of it that are doing you some good. In this situation, where the market in question is not a natural competitive one, we can do far more by correcting the rules that created the situation, than by bludgeoning the result with the blunt instrument of legislative coercion.
Skilling is very enthusiastic about Enron's unusual business model, which it turns out has a lot less to do with producing and selling energy than with creating new kinds of commodity markets to buy and sell energy in. They seem to see themselves almost as a kind of mutual fund allowing people to invest in generators and pipelines while somebody else takes care of handling the machinery troubles and other risks. They don't particularly want to own the generators themselves, he claims. The lead statement from their website's "our products & services" page reads like a mutual fund ad. Their actual generators and pipelines are referred to coyly only as their "access to physical commodities", which is one factor that helps them "create value and opportunity for your business". Now they're expanding into things like making a commodity market for wholesale digital bandwidth, and other commodities that have nothing to do with power generation.
Skilling boldly predicts that the big monoliths of the petroleum industry will break up into lots of smaller companies. I am less than convinced.
As I type this, Briggs & Stratton is advertising small generators for home emergency use on the radio. "Take control of your life now!"
Apparently there have been other employees who leaked such information to reporters within the last month, but nobody backed it up this solidly or was willing to testify under oath as these three have.
Here is the San Francisco Chronicle's article reporting this, and here's another from the Contra-Costa Times.
I consider myself vindicated.
June 27: I just saw a Gray Davis attack ad on TV. Somebody paid for a commercial blaming Governor Davis for the crisis, referring to the power shortfalls as "Gray-outs". It did not advocate any policy change, it solely tried to denigrate Davis. The "Paid for by" line only mentioned some cover organization, "American Taxpayers Alliance" or some such deliberately generic and nondescript name. But then five minutes later the news showed former governor Pete Wilson giving the same message. Clearly the Republicans (who have been on the ropes in California, nearly a dead issue as a political force, for several years) are doing their damndest to make hay while the artificial light isn't shining. Wilson blamed Davis for "failing to respond" to the increase in demand.
Let's remind Mr. Wilson of a few facts here... One: the time it takes to build a new generator is longer than Davis has been in office. Two: more generators are being built these last two years than were ever built during Wilson's eight years in office; his term coincides with the prolonged period of non-construction. Three: it was Wilson who signed the disastrous deregulation bill. Finally, when state and federal actions have been proposed to actually do something about the out of control price spiral (largely driven by unethical and perhaps illegal means), it has been Republicans who resisted such steps and essentially argued in favor of leaving the situation unchanged. Such progress as we have made on price reduction -- at times significant -- has been in spite of Republican resistance.
It looks like Governor Davis's call for forced refunds is getting taken seriously. He is asking a court to award $8.9 billion in refunds, and some neighboring states are asking for another $6 billion. The scuttlebutt seems to be that he might get $2 billion, or $2.5 billion. That's kind of silly, because it's more or less a drop in the bucket, and if you agree that any refund at all is owed or that anyone should be forced to pay one, that amount is only a token. On what basis does the first $7 billion (or more) of semi-illegal profit get considered legitimate and the last $2 billion not?
It may not hurt the generators much to be made to pay such a refund, since much of that money is not actually reaching them anyway -- they are getting I.O.U.s from the distribution utilities, who aren't getting that money from their customers because residential users are still paying only moderately elevated rates. And with PG&E in bankruptcy court, they are only getting paid a court-mandated fraction of the nominal amount owed. They'd only be giving up some of the I.O.U.s that would probably be unpaid anyway.
Hmm, maybe that's why there's talk of a $2.5 billion refund -- because that's how much they're willing to give up on paper without actually losing any of their profits.
Meanwhile, California consumer advocates are saying that such price fixing that has taken place is probably not illegal. The only clear illegality would be if the different generating companies colluded to fix prices. But I doubt they did, for the simple reason that they didn't need to. The system works in such a way that each company can push prices up by entirely independent action -- which is exactly why, in my opinion, this whole crisis was able to happen.
On the other hand, the Public Utilities Commission is saying they have records of times when they've asked generating companies to start up units that were ready to run, and the companies refused, thereby forcing up spot prices, and they say this may be an "unfair business practice" that could be prosecuted.
The shortage of water for hydroelectric power is real enough that many farmers are going to be forced to cut back on their use of state supplied water. I had found it hard to get any figures, and the rainfall numbers I was able to spot-check didn't look too bad, but a number of reservoirs are apparently pretty low.
Today (July 2) the governor is throwing the ceremonial switch to activate the Calpine Southern Energy Center in Yuba City, which will add 540 megawatts of new production. No plant this big has been added to California in more than a decade. He's activating another 540-megawatter in Pittsburg this week. Calpine seems to be the power company that is most aggressively building new generators.
Now I can't see how this ruling makes any sense. The extra amount California has had to pay for inflated energy prices lately is in the tens of billions. Wagner is ruling that maybe two percent of that excess is owed back as a refund. How on Earth can you rule that some refund is owed, but only two percent of the amount? If he ruled that the windfall profits were all legal and therefore the generators don't have to pay a nickel, that I could understand. But ruling that some refund is owed means that there are crooked undeserved gains here. Given that there are gains judged to be crooked and undeserved, how on Earth do you pick out only two percent as the crooked part of it? That just doesn't make sense. All of those extra billions were made the same way.
Wagner is not a true judge, he is an employee of the Federal Energy Regulatory Commission, which has often been accused of being a "handmaiden of the industry". FERC has sometimes stepped out of that role lately, but it doesn't look like the effect reached as far as Wagner. I smell a faint whiff of corruption. I suspect that Wagner ruled that the state deserved a token payment because the generating companies offered a token payment to settle the case.
Governor Davis's next option, of course, is to bring this before a real judge with a lawsuit -- and that's what he's ready to do. "If you think California will settle for $1 billion in refunds, we'll see you in court."
The Republicans are gloating because they see Davis as having tied his political hopes to getting the refund, which will be difficult. They are doing their best to hang the whole crisis on Davis... yet I have not yet seen any Republican do one constructive thing to reduce the crisis. Davis has succeeded in bring peak prices down substantially, while the Republicans have done absolutely nothing at all to help.
California consumers have done a lot, however; many (especially Republicans, I seem to recall) denigrated Governor Davis's call for a 10% cutback in consumption as unrealistic, but the savings rate for June was 12.3% in total watt-hours, and 14.1% in the level of the highest peak during the month. In the same month, the amount of generating capacity offline dropped to 6.7 GW, from a high of 14.9 GW in April, as warm weather increases the demand. (In June of '99 the amount offline was 1.2 GW.) Those figures are from the California Energy Commission.
The CEC, by the way, disputes the common claim that nobody foresaw the recent sharp increases in electric demand, and have a page showing that the predictions they made as long ago as 1988 were above the actual demand growth by enough to give a comfortable safety margin. They did point this out during the nineties to people like Governor Wilson, so those people have no excuses for assuming new construction was not needed.
The PUC had been planning for some time to have PG&E drop the line voltage by three volts, then at the last minute PG&E balked. The PUC people were surprised and frustrated, saying "We thought everybody was on board for this." Now (July 26) PG&E is going ahead, but only with about 10% of customers. In this reduced form the move will only save about 40 megawatts. The Governor's original proposal was for considerably deeper savings by this approach -- maybe 500 megawatts. Apparently PG&E is paranoid about consumers getting upset, or the risk that some slight voltage deficiency will damage something and get them sued. But the drop is smaller than the normal range of variation in the voltage you get by the time the power reaches your house.
Prices are staying down, at just the time of year when demand would naturally drive them high. This shows that (a) the Governor's efforts are working, and (b) that the high prices and blackouts during the spring, when demand is low, are not a product of free market forces.
FERC has backed up Judge Wagner's finding on the small refund due to California. It turns out how they arrived at this tiny figure was by (a) considering nothing before October 2000, and (b) comparing spot prices to the price cap rules they set this spring, instead of to historically normal prices or prices based on costs. As far as I can tell, we get a refund only for overcharges beyond what they would have capped under the current rule. But the current price-cap rule is an ad-hoc compromise that has no legitimacy as a guideline to what a valid price should be. Senator Barbara Boxer says that this shows "a fundamental disconnect between FERC's responsibility to protect consumers and the actions of its commissioners. Once again, FERC has shown that it is not up to the task, and as a result, California is left paying the price." Governor Davis took a spin saying that the ruling "validates California's claim that significant refunds are due California residents and businesses." Which is true. Having admitted that some refund is due, defending the formula they used to decide the amount is going to be a tough job, if anyone actually manages to hold them accountable for it. Fortunately, fears that the commission was going to dismantle the ISO in favor of a regional authority did not materialize. There is more bureaucratic rigamarole to go through, but FERC chairman Curt Herbert is resigned to the whole mess ending up in a circuit court for a final settlement. ISO chief Michael Kahn verified this, saying that if FERC granted anything less than the $8.9 billion asked, "rest assured, [it] will be litigated."
The commission decided that municipal utilities' power sales should be included in the refund calculations, so that outfits like the LA Department of Power and Water might have to cough up. Two democrats in the commission objected that this was an overreaching of FERC's authority, which has no jurisdiction over public utilities. Commissioner Patrick Wood argued that this was "a natural extension" of their ruling, which apparently is reason enough to ignore its lack of legality.
Santa Rita prison recently became the largest facility in the state to have a roof full of solar panels. They figure it will save them considerable money over the long term.
FERC's latest weirdness: they have decided that any power purchased by the California Department of Water and Power (whose giant water pumps are the single biggest electricity customer in the state) is not eligible for any refunds. If not overturned in court, this means that about a third of any refund California is rewarded would be erased. The reason for the DWP's ineligibility, they explain, is because it bought directly from utilities instead of going through some state agency. But it originally did go through an agency: the Power Exchange. This ended when the Power Exchange was abolished by <drum roll> FERC.
Their ruling that only gouging since October 2000 is eligible for consideration, rather than since May 2000, cuts another 20 percent or more, and when you add up all the rulings, less than half of the refund the state has asked for will even be considered. FERC will decide the actual amount in an evidentiary hearing lasting 90 days. At which point the whole thing will be done over again in federal court.
This may be the beginning of the end for the price-jacking cartels... when the companies start to turn on each other, the whole scheme breaks down.
Unfortunately the body that will be hearing the complaints is FERC, and their Judge Curtis Wagner. (Real champions of the people, that bunch.) But these El Paso guys are so obviously trying to weasel that even Wagner is getting pissed at them.
August 2: As we enter high summer, the rate of electricity conservation relative to last year is dropping from 12.4% down to only 5.2% for July... and July was not hot this year. This is somewhat alarming. However, the peak usage is still down 10.7%, so it's not as bad as it sounds. Still, a real hot spell could be trouble.
The amount of generating capacity offline is dropping, from a high of 14.9 gigawatts in April down to 6.7 in June... no number for July yet. (In 1999, the drop between April and June was from 5.7 GW to 1.2 GW, reaching a low of 0.88 GW in August.)
August 6: Heat wave coming, time to conserve extra hard! We have had no blackouts yet this summer, but now is when it will happen if it ever does. In the early days of the crisis, these were the times when the first blackouts occurred.
The governor is being accused of crafting a policy with favoritism for Southern California Edison, and hiring people with too many ties to that outfit. But soon we should have some credible policy recommendations from outside of Sacramento: the William and Flora Hewlett Foundation (that's the Hewlett who founded HP with David Packard) is spending $10 million to set up a think tank to study the energy problem non-politically. One part of the job is to look at every alternative fuel option. If they come up with a report that strongly contrasts with what's coming out of Sacramento, it could significantly cut down on the range of excuses available to the politicians.
Gasoline prices are down more than anticipated. Maybe the continuing wave of tech industry layoffs is cutting down demand.
The worst part of the bill is that the state could pay $2.4 billion to buy main transmission lines from SoCalEd -- the same lines that the original bill would have paid $1.2 billion for. Edison, which was kind of unhappy with the original bill, was pleased as punch once this was put in. What corporation wouldn't be happy with having the taxpayers give them free money? One consumer advocate, Harvey Rosenfield, calls the transmission lines "useless", and is outraged at this price.
Other consumer advocates are attacking the bailout on many fronts. Some said the plan could become a disaster as bad as the original 1996 utility deregulation bill that created this mess. (And some politicians are listening -- the cannier ones are worrying that this is just the sort of thing that could bite a lot of legislators in the ass at re-election time. This is one reason it took a while to get the votes in the committee to pass the thing.) Says Nettie Hoge of The Utility Reform Network, "The latest version of the bill, which is being pushed through the Legislature at breakneck speed, is dangerous. If legislators take the time to examine it carefully, they will conclude that it guarantees Edison's solvency at a huge cost to ratepayers for years to come."
Governor Davis and others have been working hard to present themselves to the public as champions fighting for the common consumer against special interests. But shit like this shows that, in ways that count, they are hardly different from the politicians that originally created the crisis: they are unable to take any action which would result in a large profitable business losing any money. The giant corporation comes first, the people that the money belongs to come after.
Anyone who still thinks Davis is a bulwark against special interests should take a look at his recent efforts to gut an assembly bill that would protect your privacy rights from telemarketers and junk mail advertisers. Davis basically preserved the spirit of the bill, regulating the sharing of personal information between companies, and only took out the minor parts that actually respect your basic rights.
By the way, I recently heard some pundit on the radio stating that our kind of deregulation is spreading across the rest of the country, leading to a high likelihood of price gouging artificial shortages in many states. He said the system is "unravelling across the board." Unfortunately I failed to catch his name...
The SoCalEd bailout is ruffling feathers. A radio ad from the California State Employees Association (their full name is abbreviated as CSEA / SEIU AFL-CIO, CLC -- seventeen letters!) is attacking the governor and legislature for handing over billions to a private corporation while the state's own services get shorted. Most important to them, as a labor union, is that the state has thousands of job openings that aren't being filled. At the same time, PG&E is airing an ad calling for consumer protest to the Public Utilities Commission because, they say, it's getting ready to pass a rate plan in which northern Californians (PG&E customers) will pay 40% more than southern Californians (SoCalEd customers). This is news to me. If true, it certainly reinforces the growing impression that SoCalEd has got plenty of special friends in Sacramento. The news mentioned today (Sept. 7) that the ads are working, and pressure is being felt.
Perhaps, in a sense, the politicians are to be congratulated for being as successful as they have been so far, when fighting this problem with one hand tied behind their backs... tied by a rope of braided money. Either that, or we should tar and feather them for the corrupt bribe-takers they are... and then do something about the system that makes taking bribe money an indispensable step in getting elected.
I said it months ago and it's worth repeating: for these utility corporations to go genuinely bankrupt and out of business is not something we necessarily need to prevent. It might be, in the long run, a constructive step.
Sept. 9: I just heard KPFA broadcasting some Green Party speakers criticizing the governor's handling of the power crisis, and they pointed out something new to me. We have heard a fair amount about how the governor stabilized the electricity prices by signing long-term contracts for electricity at somewhat inflated prices, as a way of heading off extremely inflated prices in the shorter term. There was no clear consensus about whether he had gotten a good deal or had paid too much. What I didn't know is that he also signed long-term contracts for natural gas, and in this case, he agreed to a price that was about as high as natural gas had ever gone, and soon afterward the market price fell far below what he had agreed to, forcing him to later sell off some of the contracted-for gas at an eighty percent loss! The electricity purchase was arguably effective, but the natural gas purchase appears in hindsight to have been a complete financial blunder. I don't know enough right now about what was taking place at the time he made the decision, to know whether there was a good defensible reason at the time, or whether it just amounted to handing corporations free money from the taxpayers.
Sept. 18: After the World Trade Center attack, nobody is paying much attention to the electricity issue any more, particularly since the crisis aspect of it had already been winding down -- summer is over and we never had a rolling blackout. But an eye still needs to be kept on this, because serious efforts are still being made to steal from us. It will probably be a while, though, before there is anything new to report here.
I got a letter from someone in the renewable energy business. Some quotes:
Great explanation on the California Power Crisis and I have to agree with you on many points, especially Gray Davis. I talk to a lot of people every day about electricity and I get the same statement every time: Davis has his head so far up his rear...He raises the issue of government subsidies and incentives. Such incentives have been tried at various times, but they could never do much of a job because they kept changing. Every time there was a change of ideology in the elected officials, incentives would be scrapped, or recreated, or shifted around. The heavy energy industries could count on consistency. The constant shifting of policy on renewable energy undermined people's confidence in long-term business strategies in that area. What this means is that, despite all attempts to move the process along, renewable energy is probably going to have to compete on purely unassisted market basis if it's going to get anywhere. The oil industry and other established powers, mind you, have not had to do that for a long time. They have been buying favorable legislative policy for a century or more... how else do you explain, for example, the California law which says that deaths in oil refinery work can only be penalized at a much lower price than deaths in any other kind of industrial accident are? I don't remember the exact figures but it's something like $75,000 as opposed to $1,000,000 elsewhere.
There are currently 14 companies dealing with PV [solar cells] and wind here in San Diego now. Maybe four or five of them are legit companies with engineering services, upstanding BBB members and have certified electrician. The rest are run out of apartments with their brother doing the installation. You can tell by the .aol .msn email addresses... Home Depot is even jumping on the band wagon. Unfortunately, they know nothing about PV and hired a bunch of kids to visit customers homes for "site visit" pre-engineering appointments, gave a PV faq's script to their current customer service hot-line representatives and struck an alliance with a US PV manufacturer and distributor for product. They might make it... and then again, they might burn down a few houses.
The good news is that some renewable power systems are at that point or near to it. Solar cells make economic sense for far more people than they did five or ten years ago. If other states start having electricity crises, they will make even more sense. If national policy reflected the real costs of different power generation methods, we'd already have a massive build-up of solar roofs taking place. Widespread use of solar roofs would cut our oil consumption drastically. Wind power and small hydroelectric power can also pay for itself in many cases. If you're a homeowner in a suitable climate who can afford to invest some capital up front for savings later, these options are very much worth looking at today.
All of the above goes for electric cars too. Despite intermittent governmental attempts to provide incentives, they'll have to compete pretty much on their own... and they're about ready to do so. Electric cars with old-fashioned lead batteries are now to the point where they don't cost all that much more than gasoline cars to make, even when they are built in small numbers. You have to replace the batteries every two or three years, but this costs less than what you save on gasoline. The one limitation of lead-battery cars is that you can't take long road trips in them without stopping to find a recharge many times a day. But for around-town use they are pretty much ready to use now, without waiting for a more advanced battery to be ready. This is especially true for multi-car families that can afford to have both an electric car and a non-electric one.
When I was in Seattle recently, I attended a meet of electric car owners, and got randomly interviewed by a radio reporter. One question was: If electric cars become popular, won't that lead to a further electricity crisis? My answer was that since their usage will build up gradually, and since it will lead to a reduction in the total amount of fossil fuel burned, I do not foresee any power shortages resulting from it.
Rumor has it that Detroit is aiming for fuel cell cars as the long term alternative to gasoline. If this is true, it will end electricity worries even better, because it will enable people to use their car to provide electricity to their house. I personally do not favor the fuel cell plan, however, because it will require either a whole new infrastructure to distribute hydrogen gas, or a wasteful conversion process that extracts hydrogen from other fuels and essentially throws away all the carbon in it, most likely right into the atmosphere.
For more on these alternative-energy issues and on electric cars, see my energy micro-rants page.
Some good news: natural gas prices have fallen to half what they were six months ago. And gasoline prices are dropping sharply in some areas, such as San Jose.
PUC president Loretta Lynch basically says the contracts were repudiated because they were negotiated under duress and the governor agreed to terms that, by this time, are highly unfavorable. Yet she gives him credit for breaking the upward price spiral with this tactic, saying he "saved the state economy." She says their goal is not really to welsh on the contracts, but to use a different payment plan taking money from electric bills rather than the state's general fund, for the short term, and then renegotiate. This plan is backed by state senate President Pro Tem John Burton, who thinks it is "now really the only viable option." Defenders of the PUC say they had to refuse the plan, because it amounted to them signing a blank check. Detractors say they have endangered the state's finances in a way that might have repercussions for decades.
The PUC pulled another move at the same time, which may end up scuttling Davis's expensive plan to bail out Southern California Edison. They made a deal with SoCalEd to allow them to pay off debt by splitting the costs between shareholders and ratepayers, thereby keeping them out of bankruptcy court. This has got to be a big improvement over having the state hand them free money. Davis praised the move and is dropping his bailout plan, which was very unpopular and probably couldn't have passed -- Burton, for one, called that plan a "piece of shit". But consumer advocate groups still don't like it. Says Harvey Rosenfield, "The governor got his unelected appointees to do to us what elected officials refused to do for months: stick small residences with the bill."
On the plus side, the generators holding all the SoCalEd IOUs are griping that this deal means they will be the last to get paid, if they ever do.
PG&E is taking an opposite tack from SoCalEd -- they want to stay in bankruptcy court, and in time transfer a lot of their state-regulated assets to completely private unregulated subsidiaries, whereas SoCalEd wants to stay out of court and remain a regulated utility.
The Bay Guardian is pleased as punch, since they've been advocating this for years. They've published their own plan for how the city could reduce its fossil fuel consumption to only 20% of demand, in a reasonably short time, pointing out that success in such a venture could galvanize whole industries and spread renewable power on a large scale to many other locations. They assert the solar stuff will never happen unless PG&E is moved out of the way first.
If this is done, it will be the biggest and most definitive experiment yet with renewable energy investment... and with getting rid of for-profit utilities to deal with electricity shortages. We'll be watching closely.
October 10: The Bay Guardian's 35th anniversary
issue is out, and their cover story is "The Case for MUD", saying that
the initiatives to create a public utility could cut rates twenty percent
and still make lots of revenue for the city. There is no reason to
doubt that this is true; PG&E's prices have never been competitive.
They've never had to be. Here is the Guardian's comparison of PG&E
with three public utilities -- one small (City of Palo Alto Utilities),
one medium (Sacramento Municipal Utilities District), and one large (Los
Angeles Department of Water and Power):
|Total customers served:||27,638||495,167||1,374,424||4,600,000|
|Current monthly rate for 700 KWH:||$53.34||$65.09||$72.92||$94.06|
|Employees making over $250,000 a year:||0||1||1||47|
|Money transferred to parent corporation:||$0||$0||$0||$5,100,000,000|
|Money transferred to local government:||$7,300,000||$0||$124,000,000||$0|
Their lead editorial goes into the history of their campaign against PG&E, which goes back over 32 of those 35 years, ever since the story broke that PG&E's highly profitable contract with the city was actually illegal. The Chronicle and other major newspapers would not touch that story. They accuse the Chronicle and other major media, and many liberal politicians, of being bought into silence by PG&E's money and influence. It is indeed a bit odd how no politicians have embraced the idea of a public utility district there until this year, despite how successful they have been elsewhere. They say that, through large foundations like the Pew Memorial Trust, PG&E was able to buy off highly visible environmental groups like the Natural Resources Defense Council, who endorsed the disastrous deregulation bill. (The Pew foundation is now distancing itself from involvement in deregulation issues.) They even accuse PG&E of using their influence to get them kicked out of a local press club's journalism awards contest, because of the risk that the Guardian might win one and gain credibility.
October 29: One week before the off-year election that could kick PG&E out of San Francisco, they're running an ad campaign on the theme of "How many bureaucrats does it take to screw in a light bulb", using the standard line that propositions F and I "would create a massive new public bureaucracy". Remember folks, there are plenty of cities where such massive public bureaucracies have turned out to be more cost-effective than paying a private monopoly. At least this time they had to mention the name "PG&E" in the paid-for line, instead of just their Citizens For Whatever cover organization.
When I was young, any large ad campaign featuring a Big Lie would almost always work. In any proposition battle the side with the heavy money would win. But that isn't true any more. Californians have developed a much better immunity against the lies in political saturation ad campaigns. There may even be a growing awareness that if there's a massive ad campaign that tries to scare you, then you can bet that somebody's afraid of the issue being considered on its merits. People might even be suspecting that you will rarely go wrong if you just automatically vote against whatever side mounts such an ad campaign.
PG&E says the closeness of the outcome shows there is no mandate for public power, even if it wins. Makes you wonder how many extra votes they think a measure should have before it counts. Maybe they'd like Antonin Scalia to decide the outcome.
(A side note here: George W. Bush was once asked which supreme court justice he most admires, and immediately said Scalia. Then he added, "and Clarence Thomas" -- a judge who has found extremely little admiration from any other direction. Anybody who buys the rhetoric that he's a compassionate moderate would really have to scratch their head over him naming those two.)
On the morning of election day, the Chronicle's business section reported that PG&E Corporation, the parent company of the nominally bankrupt utility, had third quarter profits this year that were three times the third quarter profit of last year. The cost of the electricity they're buying is much lower now than a year ago, when they spent $2.23 billion on their electricity supply for the quarter. This quarter they spent only $697 million on wholesale electricity.
PG&E says the big jump in profitability is just reflecting a change in accounting procedures for writing off losses. They are downplaying the high profits as much as they can, and they claim that if you look at it right, the profit is actually just about the same as last year. That's a rather puzzling claim, given that their costs have gone down and the rates paid by customers have gone up. I guess they'd rather avoid the question of why they are now able to show a net profit that is larger than their entire expenditure for wholesale electricity: $771 million, even while they're in bankruptcy court trying to avoid paying their IOUs. Even last year, they still made a $225 million profit for the quarter: while the utility lost billions on overpriced power, their power generating unit, National Energy Group, made billions back. Far from divesting themselves of their remaining generation business, they are expanding it, and CEO Robert Glynn says they are planning to jettison the utility and make it survive on its own. Consumer groups sum all this up by saying, "They are not hurting as badly as they say they are," and say the breakup is something the bankruptcy court should reject.
Remember Enron? They were being talked up as the Energy Company of the Future not long ago, because of their bold new business plan to make money off of electricity without having to actually make any of it any more. Suddenly they're surviving at the mercy of their creditors and negotiating a possible buyout by one of their competitors, Dynegy. What happened to all the profit they made from the crisis a year ago? Well, it doesn't help that PG&E hasn't paid them for the extortionary rates they were selling the power for, but the story I've heard is that apparently what brought Enron low was the dubious and possibly crooked nature of various creative deals made by the company's chief financial officer, who allegedly arranged sweet deals that he managed both ends of, between Enron and various other companies he had a piece of, and skimmed off millions for himself in the process. Perfect for a company so widely known for its close friendship to George W. Bush.
CEO Jeffrey Skilling (the guy who got hit with a blueberry pie last spring) lasted only six months before fleeing the company. "Personal reasons." He was replaced by Ken Lay, the board chairman.
November 10: it looks like the Municipal Utilities District proposition in San Francisco (measure F) lost by about a thousand votes. A recount is being called for, since (as is all too usual) the S.F. Registrar of Voters office had a few too many snafus and screwups going on for anyone to be 100% confident of the count. "We don't know if it's incompetence or malfeasance.... We believe this election is chock-full of irregularities," says Ross Mirkarimi, manager of the joint campaign for the two measures. The more sweeping measure I lost by around five thousand.
What on Earth did anyone think they were accomplishing by voting against public power? Did they simply listen to the big money ad campaign and soak it up uncritically? Were they so identified with the spirit of capitalist free enterprise that they feel obligated to distrust a public agency more than they distrust a private monopoly? Were they simply scared of making any changes? I don't know, but that so many people should vote in favor of a continued monopoly, with no real reason to do so, is puzzling to me. Nobody would have chosen the current arrangement if its consequences were spelled out before they decided on it.
By the way, it wasn't just PG&E that pushed hard against this measure -- it was also Pacific Bell, the other big local service monopoly. Naturally, they outspent the pro-F and I forces by more than ten to one. This is no excuse for voting foolishly, though.
If measure F had won, PG&E would have attacked it in court. That's what they did in Sacramento, in a case that dragged on for something like twenty years all told.
A full-page ad in the November 19 Chronicle:
I noticed the names F and I in there, and something about volunteers walking precincts and staffing phone banks, and my first thought was, How did the pro-public power people have money for a full page ad? Then I read a little closer:
...who helped our campain defeat Proposition F and Measure
Your tireless efforts made the difference.
It sounded so much like a grassroots campaign, but this was a PG&E ad! This rather expensive promotion of the idea that their campaign was grassroots, after the election was already over, just about made me hurl. Come on, there was no popular grassroots support whatever for maintaining a PG&E monopoly; there were only people who believed some part of their propaganda campaign -- in most cases, probably, the voters least informed about both sides of the issue.
They included a list of example names of people they thanked. Who was listed? Five newspapers who endorsed their side (including the Chronicle and the Examiner), the Chamber of Commerce and a few other business organizations, nine local Republican and Democratic Clubs, 63 or so random individuals... the following local politicians: Mayor Willie Brown, Senator Dianne Feinstein, Supervisor Tony Hall and Supervisor Gavin Newsome... and six union locals of electricians and other engineers.
Now I can understand Willie Brown taking the pro-PG&E side. He is, and always has been, well known as the perfect you-scratch-my-back-I'll-scratch-yours favor-trading machine politician. In other words, even his own supporters see him as benevolently corrupt. (In fact, that may be the explanation of how the measures were defeated: Willie Brown's get-out-the-vote machinery.) Feinswine's reputation in this area is not so prominent, but it sure wouldn't surprise anyone for her to be trading favors with a powerful business interest. (She recently ran for re-election, and I couldn't vote for her, because her Republican opponent was a better Democrat than she was.) The names of Senator Barbara Boxer, and Representative Nancy Pelosi, I notice, are absent.
The unions are a bit more of a surprise. I happen to know that PG&E treats its electrical workers like dirt. A brother of an ex-boss of mine was one; he'd work for 24 continuous hours in storm season and then get yelled at for taking a twenty minute nap. A co-worker at my present job is another; she quit because she got tired of repeatedly getting almost killed or maimed by random fuckups that would not have happened with responsible management. (When conditions at our company are at their absolute worst, she'll say "This reminds me of PG&E.") If PG&E's unions had any backbone they would have done something about this; made them hire more people, made them take safety more seriously. Since they didn't, and those unions voted against a management change that probably would have made it more likely to get those things, I can only assume that the company has these unions in its pocket, or at least has the individual workers buffaloed with propaganda.
Actually, two of the locals were Communications Workers
of America, which I would guess work for Pacific Bell, not PG&E.
I don't know how many locals PG&E works with; they may have only turned
a minority of them for all I know.
Let this be a lesson. The single most powerful faction in politics today is not liberalism or conservatism, but privilege and corruption. That's what elected George W. Bush, and Bill Clinton would never have been elected either without its approval. That's what handed the airline companies a $5 billion gift of your money to compensate it for lost profits after September 11, while the U.S. Postal Service's losses after the anthrax mailings went begging. Probably half of the federal budget gets spent according to its dictates. The same corruption that won PG&E its monopoly generations ago is still protecting it.
Electricity prices have been driven down toward normal over the summer, but there's a strong likelihood that this crisis is not over. The winter demand peak is coming soon, and the legislature has, despite spending billions on the problem, still not closed the legal doorway through which so many generators found an effortlessly easy opportunity to profiteer from fake shortages. The crisis and the popular unrest resulting from it are powerful forces in Sacramento (and in Washington), but not as powerful as the favoritism and bribery that protects the thieves.
The story continues with the collapse of Enron, and
bribery scandal reaching deep into the White House, here.
over to my new electricity page, devoted mainly to the Enron scandal
miscellaneous micro-rants on other energy topics
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