In 1996, legislation was passed in the state of California that deregulated the production and sale of electric power for the big three big power producers and retailers: San Diego Gas and Electric (SDG&E), Southern California Edison, and Pacific Gas and Electric (PG&E). These companies were state-regulated companies until they lobbied and made campaign contributions in support of deregulation.
A result of the deregulation was to create a partially open market (the California Power Exchange) to encourage independent energy producers to participate in California’s power market, and therefore increase the supply of energy offered and hence lower prices. The legislation was based on the expectation that the big three would cut their wholesale costs and increase their retail profit by selling off their old and expensive power production plants. And as well act as middlemen, purchasing electricity on the open market where newer companies with their new plants dominated.
The big three power companies started by first placing a ceiling on rates they could charge consumers until they sold off their capacity to produce electricity. They competed with an increased number of large out-of-state wholesale electricity producers and suppliers, including Enron and began the process of selling their productive assets so that they that they could lift the cap on their retail price. In all they sold off about 40 percent of their productive capacity.
Deregulation Jacks up Prices!
SDG&E completed divestment of its power plants, and thus began the first test of a deregulated market for selling retail power. Instead of wholesale prices decreasing, they skyrocketed statewide by 2000. The free market was working just the opposite of what its advocates had predicted. Edison and PG&E still owned their plants and thus could not raise their rates. Their position was even worse than that of SDG&E because the wholesale cost of energy had risen to a price greater than the retail price at which they were allowed to sell, and they were not supposed to pass the increase along to consumers. As a result, they had to borrow heavily to fulfill their contracts. Instead of letting the deregulated market do its thing and let a more competitive company step in, PG&E lobbied California’s legislators for a 40% rate increase and two rounds of bailouts courtesy of PG&E customers. The utility’s ratepayers were to pay for the company’s mistake through mandatory fees while California legislators continued to guarantee the company 11% profit margin and therefore they didn’t have to divert any of that cash towards paying its own debt.
The energy crisis became very serious and very public in the summer of 2000 when California’s reserve supply fell to 5 percent of need and the following month PG&E instituted a number of planned rolling blackouts. This was occurring just as Sunlaw Energy Partners was preparing its application to build the 550-megawatt Nueva Azalea power plant in South Gate, a part of Los Angeles County which was already burdened with polluted air. Supplies were dangerously low in part because many out of state power companies had decided to close down plants for extended maintenance during a period of California’s peak demand. At the time, the power crisis was attributed to rapidly rising demand and inadequate supplies, therefore in the summer of 2000 when Sunlaw Energy Partners prepared to move forward with its plan it was the expert and popular opinion that more power plants were desperately needed. Environmentalists and advocates of clean and green sources of power were pretty well shut out.
Low-income, working class, Latina/o community take the first hit, always
In 2001, when California seemed to be in the midst of its worst electricity shortage ever, some three hundred high school students and their parents marched from South Gate High School in southeast Los Angeles County to a meeting of the city council to tell their city council to tell their elected representatives that they did not want the power plant built near their city. Their goal was to get the power plant onto the council’s agenda for discussion and to get the council to take a nonbinding vote on whether it supported the power plant. The city of South Gate was a predominantly low-income, working class, Latina/o community of largely new immigrants. One of their messages was corporations deliberately dumped and sited toxic industries in these low-income communities of color believing that the residents couldn’t fight back. The council’s decision had no authority but several weeks later South Gate voters defeated by two to one a non-legally binding referendum supporting the power plant. The California Energy Commission decided to stop the project.
Direct democracy put to use by lobbyists!
On June 8th in a state wide ballot in California, voters faced an initiative called Proposition 16 officially described as: “Imposes New Two-Thirds Voter Approval Requirement for Local Electricity Providers”. A ballot proposition is a proposed law that is submitted to the electorate for approval in a direct vote. It may take the form of a constitutional amendment or an ordinary statute. Direct democracy by way of a ballot proposition gave California’s citizens a way to bypass their representative government and restore absolute sovereignty to the people. Currently it is also giving a way for the rich and the corporates to write their wishes directly into the highest level of the law by convincing people into voting their way using massive amounts of cash on political strategists, lobbyists, professional signature gatherers, astroturfers and political ad campaigns. The initiative was sponsored and paid for solely by one company, Pacific Gas and Electric. In PG&E’s $35 million advertising campaign, they called it the “taxpayers Right to Vote”. If it had been enacted, the constitutional amendment would have required local governments to obtain the approval of two-thirds of their voters before providing electricity service to new customers or expanding such service to new territories. Proposition 16 would have sabotaged existing law allowing communities to choose alternatives to PG&E, including a movement to enable municipalities to offer renewable green power. It was defeated with 52.6% of the voters voting no.