California power deregulation disaster should be a warning

California power deregulation disaster should be a warning
January 2001

Florida electricity customers will soon face a struggle over power deregulation. Already Gainesville ratepayers are suffering as Gainesville Regional Utilities increases its advertising budget so it can 'compete' when the market is opened to profiteering. Florida politicians should watch what's going on in California and end the privatization madness before it takes them down with it.

When California deregulated its power industry in 1996 to allow private utilities to profit, California's citizens were promised lower rates through competition. This summer, in the first area to deregulate totally, San Diego ratepayers saw their electricity rates triple. Not only have the promises of lower rates turned out to be wrong, now in the face of higher fuel costs these private power corporations have come crying to the State of California, trying to renege on the agreement that they wouldn't raise their rates statewide till 2002. The consumer advocacy group Public Citizen blasted the proposal in a recent press release and called for a return to public power. On Januray 8, California Governor Gray Davis agreed.

WASHINGTON, D.C. -- The California Public Utilities Commission (PUC) should reject a request by Southern California Edison and Pacific Gas & Electric to rewrite the rules of electric utility deregulation by raising consumers' electric bills as much as 76 percent over the next two years.

California consumers have been lied to," said Wenonah Hauter, director of Public Citizen's Critical Mass Energy & Environment Program. "They were told that their electric rates would go down and that utilities would assume the risks of a free marketplace. This bailout plan shows that the utilities believe in the 'free-market' only when they profit. It is now clear that deregulation is a failure and should be repealed."

When deregulation legislation was sold to the California public in 1996, the rates consumers pay for electricity were frozen at 1996 levels until 2002. Utilities, which supported this rate freeze when they helped draft the law, now seek to end it, claiming that the price they are paying to buy their power from out-of-state suppliers far exceeds the rate cap they are allowed to charge consumers. It remains unclear, though, if the utilities are really strapped for cash.

While California residents face the possibility of skyrocketing electric bills in the New Year, Edison International (parent of Southern California Edison) and Pacific Gas & Electric have enjoyed over $6 billion in combined after-tax profits since deregulation began," said Tyson Slocum, senior researcher at CMEEP. "Since their shareholders were first in line to benefit from deregulation, they -- not consumers -- should be first to bear the risks."

Public Citizen urges the California Public Utilities Commission, Gov. Gray Davis, and the California Assembly to reject this attempt to stick consumers with deregulation's tab. "The investor-owned utilities whispered promises of lower rates to consumers under competition," Slocum said. "But all deregulation has given ratepayers are power shortages and rate hikes, with no end in sight."

If the utilities cannot find the credit they need after slashing costs at their parent companies and suspending the million-dollar bonuses lavished on their executives, Public Citizen advocates allowing the utilities to declare bankruptcy. "If bankruptcy is declared, the state should acquire the utilities' assets, Hauter said. "Instead of spending billions to line the pockets of CEOs and shareholders, Californians would be making an investment in controlling their own power, as in Los Angeles and 30 other communities."

If the rate freeze is repealed, Public Citizen notes that this wouldn't be the first time consumers have bailed out the utilities. Utilities were allowed to add a surcharge onto electric bills, charging consumers more than $17 billion, to cover debts for the utilities' past investments in nuclear power. This billion-dollar bailout meant consumers have been paying artificially high electric rates. "It's like deja vu all over again," Slocum said. "Any rate freeze repeal must be offset by the $17 billion consumers have already bailed out the utilities for their bad investments in the past."

Public Citizen's website is www.citizen.org