Voice of Electricity Workers

April- June 2001

GLOBALISATION COMES HOME

CALIFORNIA POWER CRISIS time to fight back

By Fred Goldstein

Globalisation, neoliberalism, the subordination of human need to unrestrained capitalist markets- all these concepts have come to be associated with the Structural Adjustment Projects of the International Monetary Fund, the World Bank, The World Trade Organisation, and the giant multinational corporations and banks operating in the Third World.

Typically these institutions force their way into oppressed countries in Asia, Africa, Latin America or the Middle East. By financial and economic means, aided and abetted by the Pentagon and the CIA where necessary, they compel governments to remove all restrictions on the predatory operations of the transitional monopolies.

The result is a sky-rocketing cost of living for the masses, lay-offs and unemployment accompanied by anarchic investment and speculation ending up in bankruptcy. The big banks and investors then move to protect their investment by making the masses pay even further.

According to this profile, globalisation has come to the state of California. With globalisation comes the necessity for the anti-globalisation movement to bring the struggle against corporate greed home to the United States.

“ California on a silver Plate”

There is a difference between California and the oppressed countries, the exploiters have had to force their way in. They may use economic strangulation via the IMF and the WTO. They may have to overthrow governments, manipulate elections or wage outright war in order to impose their will.

But in California, the Republican and Democratic political establishments have been their willing servants from beginning.

Deregulation of the $23-billion California energy market came about in 1996 at the behest of California’s industrialists, including Silicon Valley on the one hand and the energy corporations on the other. Each camp in this unholy bloc of the capitalists had diametrically opposed motives. The industrialists wanted to lower their utility rates below the government-regulated level. The energy companies wanted to get free of debt and have the ability to raise their rates. But both were in search of higher profits.

The giant energy companies used their strategic economic and political power and vast resources to win the day. But their victory and unbridled greed has led to a financial disaster – which the banks and utilities, with the obedience of Govt. Gray Davis and the California legislature, are trying to unload almost completely on the back of the people.

The financial crisis has been precipitated by Pacific gas & Electric and Southern California Edison declaring themselves $12 billion in debt and using the threat of bankruptcy to extract concessions.

Shifting Billion to friends

But during the deregulation period both PG&E and SCE have moved billions to their parent companies, PG&E Corp. and Edison International. According to a memo by the Utility Reform Network, based on an audit of PG&E that the group forwarded to the California Assembly and Senate, “from 1997 to 1999 PG&E provided PG&E Corp. $4.0 billion in the form of dividends paid and repurchases of stock. In the first nine months of 2000 PG&E generated $1.8 billion in cash, of which $632 million was transferred to PG&E Corp.”

These transfers took place at the height of the power-crisis at a time when PG&E claimed it was going bankrupt.

According to the Los Angeles Times of Jan.24, there is “ an estimated $10-billion windfall that Southern California Edison and Pacific Gas & Electric each reaped in the early stages of deregulation, from early 1998 through April 2000. Since May, the two utilities have gone almost $12 billion in the red buying high-priced electricity. Much of the $20-billion total windfall accruing to the two companies was based on extra high rates set as condition of deregulation to make consumers pay-offs the billions in debts the utilities companies had incurred in cost over –runs when they built nuclear power plants.

The bankruptcy has partly to do with fraudulent bookkeeping. According to the same Los Angeles Times story, SCE admitted that parts of its so-called “losses” were $2.5 billion incurred when it was buying energy from itself! SCE is a supplier as well as a distributor.

“A $22-billion spending spree”

Most importantly, according to a Jan.16 release by Public Citizen, the Parent companies of PG&E and SCE “embarked on a spending spree, spending more than $22 billion on power plants, stock buybacks and other purchases that far exceeded their alleged $12 billion debt from California Operations”.

This loss, to the extent that it is real, is also the result of market manipulation by the top energy companies that seized upon California’s deregulation procedures and the increased demand for electricity to make vast profits.

The deregulation law of 1996 was actually written during the summer of that year in SCE’s offices by David Takashima, lobbyist for SCE on loan to the staff of Steve Peace, then chair of the Senate Energy Committee (LA Times, Dec.9, 2000). Takashima now works for PG&E as Director of Government affairs.

Under the provisions of this bill, energy was to be bought and sold by a Power Exchange, which took computerized bids from wholesale sellers and buyers on an hour-by-hour basis for the next day’s electricity needs-a veritable commodities market in Energy.

The deregulation bill also created the California Independence System Operator (Cal-ISO)to deal with the occasional situation in which there was not enough energy being offered for sale to meet the demand by distributors. It was opposed to be a last-resort, backup operation. Cal-ISO was supposed to get on the phone and start buying energy on the spot market from whoever had it available just to cover a minor short fall.

This arrangement set the stage for a huge energy scam in the amount of billions.

The energy corporations began to hold back electricity from the Power Exchange, claiming shutdowns, maintenance problems, and so on. The less they supplied to the Power Exchange, to more the state would have to resort to Cal-ISO and to last minute desperation buying on the spot market.

Holding back electricity to force up prices

“ The designers of Cal-ISO”, wrote the LA Times of Dec.9, “figures that at most of it would handle 5 percent of the electricity consumed in California. But at times this year the Volume was 30 percent, according to Cal-ISO workers. Finding the grid strained and with only hours to spare before a blackout, they would desperately call places ranging from British Colombia to Arizona seeking enough electricity for 6 million homes.”

Electricity cannot be stored. When it is needed it must be supplied by the flow of electrons. If they do not flow, the lights go out- and that is what the profit-hungry energy giants were relying on to get their pound of flesh.

“For just five days last June,” reported the New York Times of Jan.10, “more than $1.4 billion changed hands. On the days when demand was high, some companies had enough electricity to withhold to tip the market into an upward price spiral, according to a state report.

Nor were the buyers trained in sophisticated trading techniques. “ We hired the very best system reliability operators, the people who know how to keep the lights on”, said Kellan Fluckiger of Cal-ISO, “In terms of matching wits with some MBA who got a PhD in chaos theory, who’s working on the derivative of whatever, the answer is no way. We can’t do that.”

Power Exchange scheduling director JimMcIntosh told the New York Times of how he went to a Colorado resort five years ago, invited by a group of out-of-state “MBA types” who were trying to figure out “how deregulation would work”.

They were already figuring out how they were going to make money in the California market, said McIntosh, who came back and wrote a memo to his boss at PG&E about the session.” These guys are going to eat our lunch,” he said he recalled writing. “And the rest of California’s. And they have”.

Of course, it is not the business school graduates but their corporate masters who are trying to eat everyone’s lunch. The California utilities have already eaten a good part of it. But in the recent period Texas-based giants like Enron, Reliant and Dynergy, AES, NRG, and Southern Co. together made $4.7 billion in profits from April to December of last year (Public Citizen, Jan.24).

Now the energy giants and the banks that finance their operations have all descended on Sacramento like vultures to protect their interests, just as they descended on Indonesia, South Korea, Thailand, Russia and Brazil when their schemes and speculations came to crisis and collapse.

Wall Street banks enter the picture

On Jan.26 the New York Times reported that the banks had entered the picture. “Credit Suisse First Boston” wrote the Times, “whose clients include independent power companies that sell electricity in California, has been retained by the speaker of the State Assembly to help draw up legislation intended to make sure such companies are paid the $12 billion they are owed by California utilities.” Credit Suisse’s clients include Enron, Dynergy , Duke Energy and the Calpine Corp., among others.

The Times also revealed that Goldman Sachs is a banker to PG&E as well as to J. Aron Co., which sells gas to power generators in central and northern California. This Wall Street bank was in Sacramento meeting with state officials and making conference calls to facilitate its becoming the state’s financial adviser in the crisis.

In addition, Robert Rubin, former Secretary of the Treasury but now head of Citigroup, spent 25 hours in conversation with Gov. Gray Davis. Citigroup owns Salomon Smith Barney, which does banking for Edison International and PG &E Corp.

Sooner or later, finance capital, which V.I. Lenin explained long ago is the dominant force in imperialist society, had to emerge as the central player in a crisis of this magnitude. Their presence is ominous for the masses.

Consumers to pay for the ‘gold rush’

The Los Angeles Times reported Feb.17 that consumers’ power rates are likely to rise at least 19 percent. But that was just the beginning. “Rescue-related bonds that could total more than $20 billion – an unprecedented sum for state government – are under consideration in the Capitol of fund everything from a state takeover of the utilities power grid to a partial payment of their massive debts. All would be repaid straight out of the ratepayers’ monthly energy bills.”

There is $10 billion in bonds to cover buying electricity that the utilities can no longer purchase because they claim bankruptcy. There is up to $10 billion to buy the transmission lines from the bankrupt utilities. And there are revenue bonds that the companies would be allowed to float to clear up their debts. The masses would pay it all.

“To guarantee that those monthly bills are big enough to cover the bonds, which is essential if Wall Street it is to bless the plan, rate increases could soon be necessary,” wrote the Times.”

State Treasurer Kellen Angistides “said Friday that he had selected a huge team of 26 financial firms led by J.P. Morgan Securities Inc . to formulate and help market the $10 billion in bonds,” continued the L.A. Times. “The team represents more than half of those who applied to get a piece of the issue, the largest in American history. ‘It’s a gold rush, said one Wall Street analyst.

There is no IMF nor World Trade Organisation in Sacramento, but there is the same basic cast of characters and the same scenario that played out in Jakarta, Seoul, Bangkok and Moscow. Goldman Sachs, Credit Suisse Boston, Chase Bank, Morgan Stanley, Citigroup, BankAmercia and giant multi national energy companies like Enron, Dynergy, Reliant and a hoist if others are carrying out the same plunder. They have moved into California, Squeezing the politicians and the capitalist government. They are directing the rate rises and orchestrating what is one of the biggest bailouts since the savings and loan crisis of the 1980’s.

The gathering of so many thieves and pirates from the summit of finance capital is a grave danger signal – just as the creditors’ gatherings were a danger to the oppressed countries during the Asian economic crisis. Disaster and suffering always followed

Could ‘Battle of Sacramento’ be next?

It is most urgent that the forces who came together in Seattle to oppose the WTO and its predatory corporate regime open up a militant, Seattle-style fight back against the plunder of the masses of workers and poor in California. This time, however, the entire labour movement must mobilize, together with the environmentalists and the anti-globalisation forces. And all must unite with the Black, Latin and Asian communities for struggle.

Leaving this crisis in the hands of the capitalist government of California, which will be putty in the hands of the financiers, is futile and downright dangerous. Lobbying, writing appeals and trying to figure out compromises that are “fair to both the sides” will be of no use in the face of the financial power of imperialist bankers who have never hesitated to pledge hundreds of millions of people into poverty and desperation with their austerity measures.

They are utterly ruthless. The only way to respond is with a broad peoples’ front that encompasses all the organisations of the workers and oppressed and all progressive groups. There must not be one cent for these energy pirates, who have held the people of California hostage to blackouts and brownouts and made billions of it. Their financial double-talk is sheer deception. They made billions. They have hundreds of billions. They should pay.

The rates should be rolled back immediately to what is affordable for the people. If the bankers, the corporations and the politicians cannot solve this problem to the satisfaction of the people, then the people are quite capable of assembling the necessary experts, technicians and administrators to do the job under popular control.

The only way to push back this bailout-the-rich, soak-the-people attack the bankers and the energy monopolies have placed on the table in Sacramento is to mobilize in the streets. Seattle was a great beginning in the struggle against imperialist globalisation abroad. The time to open up this struggle at home is now in California.

Energy for people, Not for profit

· No shutoffs! Roll back the rates!

· Open the energy companies’ books

No state bail-out, Make PG&E pay

Energy resources should be publicly owned and used to meet people’s needs, not for profits of a few.

Gas bills are already soaring and now PG&E wants a huge rate hike for electricity. PG&E and the other power giants caused the energy crisis in hopes of even bigger profits, and they want to make us pay. Now is the time to take action to stop the utility rep-off.

There is nothing accidental about the energy crisis that has hit California. The utility giants, Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric-who own and dominate ¾ of all power in the state-have conspired with other energy conglomerates nationwide to place electric power and natural gas on the “free market” through a massive 1996 deregulation plan.

Through the deregulation-which was written by the utilities, passed by the California legislature and signed by ex-Gov. Pete Wilson-virtually all regulatory restrictions on the utilities were removed. They were now free to sell off their power plants, invest in out-of-state ventures, and engage in other speculation.

The utility companies also conveniently wrote into the deregulation scheme the “right” to charge off their past loses onto consumers, like their disastrous nuclear plant projects, which ran into billions of dollars.

Even the tiny concession they gave consumers in the deregulation-a 10% rate cut for four years-was bogus. The utility companies passed off THEIR cost for the rate cut on to consumers, making the cut only 3%! Now five years into the deregulation scam, after amassing multi-billion-dollar profits, PG&E and the other utility giants are crying broke, issuing threats to deny service or declare bankruptcy if the state-that is, the taxpayers-does not bail them out to the tune of at least $12 billion, AND grant them a 25% rate increase.

Who pays for the crisis? Who profits from it?

California’s workers and poor are paying the price of the energy moguls’ profiteering. Our incomes are being gouged with utility bills that have sky-rocketed two, three and four times, and there is no end in sight.

In a state where the cost of living is already the highest in the country, these rate hikes are driving more people into poverty. For many, these bills are unpayable.

While working people of California struggle to pay astronomical utility bills, the corporations are raking in unheard-of profits. Some of the power plants are returning profits 5 times as high as just one year ago.

PG&E Company claims poverty and says it has no money left to pay its power suppliers. What they don’t tell you is that, with deregulation, the utility giants were busy pumping their billions into other ventures. For example, PG&E Co. funneled $4 billion to its parent company, PG&E Corp., from 1997 to 1999 to purchase stocks and dividends instead of paying for gas from suppliers. They thought they could hide that $4 billion from the consumers and regulators and get bailed out in the end. That is why we demand:

Open the books of PG&E and other utilities

Use the state’s power of eminent domain to take over the energy companies’ assets and provide PUBLIC power to the people of California. The utility giants have already made hundreds of billions over the years in profits. Any state bailout drafted by Gov. Gray Davis and the Legislature will only be one more multibillion-dollar debt that residents have to pay. Davis and the politicians are in the pockets of the utilities. That’s how the deregulation happened in the first place.

Heat and light are a right! Join the people’s Energy committee of international Action center

Courtesy : Workers World Newspaper


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