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March 2001 (Volume 52, Number 10)

Notes from the Editors

Two decades after the Carter and Reagan administrations launched their attacks on the U.S. regulatory system the world is littered with the wreckage of neoliberal deregulation. Seldom have these failures loomed so prominently, however, as in the rolling blackouts that swept much of California in January of this year. These rolling blackouts were implemented by California power authorities in a desperate attempt to deal with a burgeoning crisis in the availability of electrical power resulting from the deregulation of California’s electrical power companies beginning in 1996. The deregulation legislation, passed unanimously by the California state legislature, promised a 20 percent drop in electricity rates by 2002. Rates for final consumers were to be frozen at around 50 percent above the national average for up to four years (1998-2002), during which time the ratepayers were required to contribute to paying off the “stranded assets” of the major private utility companies, consisting of billions of dollars in bad investments in nuclear power facilities. So far, California ratepayers have paid out seventeen billion dollars to the private electrical utilities under these provisions. Deregulation also required the utilities to sell off their power generation facilities (with the exception of some hydropower and nuclear facilities).

By 2000, the eleven independent companies monopolizing electrical power generation in this new deregulated environment had taken a quarter of the total electrical generating capacity of the state out of service for “maintenance and repair,” while failing to invest sufficiently in new plants, and were declaring that energy was in short supply—despite the fact that demand for electricity in 2000 was comparable to that of 1999. This led to the jacking up of wholesale electricity rates by almost 4000 percent, while profits of electricity generators grew by 200-600 percent The two main private utilities distributing this electrical power, Pacific Gas and Electric Company and Southern California Edison, were forced to pay these higher wholesale prices for energy they purchased and by January 2001 were in default with their suppliers, unable to obtain electricity in sufficient quantities for their customers—and the controlled, rolling blackouts ensued.

It is significant that Los Angeles has been relatively untouched by the electrical power crisis. The reason is that its municipal utility, the Department of Water and Power, was not deregulated, has retained its own sources of electrical power generation, and has built up hundreds of millions of dollars worth of surplus energy capacity that it sells to other parts of the state.

Nevertheless, according to the electrical power corporations and Wall Street, the only answer to this crisis afflicting most of California is to free up the market even further by lifting the caps on the rates paid by consumers. Only with much higher prices for final consumers, it is argued, will the electrical companies be able to recover their costs and generate the economic surplus needed to invest in new power facilities. California consumers, however, are refusing to accept this logic, blaming deregulation itself and arguing for re-regulation of the entire electrical power system. Meanwhile, more than twenty states have passed legislation that will soon take them down California’s path, making the electrical power crisis—and perhaps rolling blackouts themselves—a more universal phenomenon. What the final result of all this will be no one knows. But it is as clear as day that the larger political significance of these events is that in blackouts people begin to see the light.

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2001, Volume 52, Issue 10 (March)
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