Editorial/Opinion

Making it hot for deregulation
Gregory Palast
The New York Times

08/29/2000
The News & Observer Raleigh, NC

Final
A11
(Copyright 2000)

PECONIC, N.Y. -- While reporters ogled celebrities at Barbra Streisand's
bungalow during the Democratic Convention in Los Angeles, something important
was being debated 100 miles to the south in San Diego, where there was a real
display of populism. There politicians have enrolled 2 million citizens in a
scary economic experiment. This year, San Diego became the first city in
California to experience the end of state regulation of electricity prices.
When California's lawmakers voted to bring the miracle of market competition
to electricity, they wrote into the law that homeowners' bills would fall "by
at least 20 percent." In fact, bills jumped 124 percent this August over
last. Rather than repudiate this mad market experiment, the federal
government and 24 other states have rushed to imitate California's lead.

Actually, Californians were lucky. Every hour of every day, San Diego Gas and
Electric, the local utility, must now buy its electricity at a state auction
known as a power pool. On the first hot day this summer, during the noonday
heat, the companies that produce the power, newly deregulated, cranked up
their bids to $9,999 per megawatt hour. That's about 5,000 percent more than
the once- controlled price of $20, but it could have been worse.
According to those inside the secretive auction agency, sellers assumed the
pool's computers could handle only four-digit bids. In fact, the computers
could have accepted bids for seven figures and bankrupted a chunk of the
state in a day.
One can trace California's electricity market plague largely to a single
source, Daniel Fessler. In the early 1990s, Fessler, then president of the
state's Public Utilities Commission, developed an infatuation with one of
Margaret Thatcher's free-market ventures: the troubled England-Wales Power
Pool.
How strange. Britons pay about 70 percent more for electricity than
Americans. That's hardly a surprise, as each day around tea time, when
England's usage peaks, a small clique of power plant owners take over the
electricity auction, bidding up prices by 200 percent to 2,000 percent.
In the United States, utilities vowed they would play no such tricks if
California removed the limits on profits that have been at the core of
regulation policy for the past 100 years. The promise lasted several months,
during which time five giant international electricity sellers - all new to
California - imported the techniques they'd learned in Britain that were
designed to manipulate the bidding process and in a single month produce
profits once permitted for an entire year.
The deregulation bug is now winging eastward. New York City, for example, has
reportedly succumbed to 43 percent increases in Con Edison bills.
But in San Diego, something extraordinary happened. This month, thousands
joined an unprecedented consumers' boycott. The power companies can send out
their bloated bills, but the tanned masses won't pay. Refuseniks include the
Council of Churches, the school district and - without a hint of shame -
Steve Peace, the state senator who sponsored the deregulation law.
* * *
The electricity fiasco should be a godsend for Al Gore's campaign. After all,
it was Fessler and his fellow Republicans who threw California's consumers to
the meager mercies of the marketplace. And Gov. George W. Bush pushed through
deregulation in Texas, which is widely expected produce hefty returns for a
former business partner, Sam Wyly, owner of the GreenMountain, a power
seller.
But while Gore spoke out in Los Angeles against "powerful forces," on this
subject he's mum. No wonder: the Clinton-Gore administration still promotes
California-style deregulation as a model for the nation.
But someone's ready to feel California's pain, and it's not good news for
Gore. During the Democrats' big show, Ralph Nader went to San Diego to remind
boycotters that he was founding father of the Utility Consumer Action
Network, the 46,000-member local group leading the anti-corporate uprising.
Electricity is the first big U.S. industry formerly under the tight control
of states to be opened up to international operators and their free market
rules. For the first time, Americans feel the bite of real globalization, and
we don't like it one bit.