Ettekal is a third-year business economics student.
By Yashar Ettekal
Most of us take for granted the luxury of leaving the lights on
in our apartments, blasting the stereo, or never turning off
computers or the TV. For that matter, we also take for granted the
privilege of watching professors write nonstop for two hours at a
time on overhead projectors that gulp hundreds of watts of
electricity which, for the non-science oriented, is a lot.
Given the satisfaction of switching on a lamp and actually
seeing light emanate from the filament, we should take a moment to
thank all those who opposed the privatization of the Los Angeles
Department of Water and Power. We should also thank the person who
decided UCLA needs it own power plant.
Since UCLA produces 80 percent of its own electricity,
we’re living the good life, unlike our buddies at Cal Poly,
Pomona who had school canceled last week because of a lack of
electrical power.
Since we are in such a good position, while the rest of
California along with Southern California Edison and Pacific Gas
and Electric, are all heading down the slippery but familiar path
of a public bailout, let’s analyze what went wrong. This is
an especially good time for the young Republicans from Claremont to
take notes.
First, deregulation which could have been prevented was
overwhelmingly supported by a public duped by electric
utilities.
Illustration by GRACE HUANG/Daily Bruin
In 1996, Gov. Pete Wilson, who was on the payroll of lobbyists
for the major utilities, signed a bill deregulating electric
utilities.
The problem with deregulation arises from the fact that
electrical utilities have intrinsic, but legal, monopolies since
they own all the power poles and wires in the areas they serve.
They also own millions of dollars worth of secondary equipment
such as transformers so the markets are essentially closed to the
encroachment of competitors on a fellow company’s service
area. With this hard fact, its hard to believe that
“competition” will control prices in the absence of a
regulating body run by state or local governments since by
definition these monopolies shut out competition. Put another way,
why would Edison let somebody else use their wires, poles and
transformers for profit when they can easily utilize them? This is
the first flaw of deregulation.
The second problem that arises from deregulation is that it is
assumed the market’s interests reflect the people’s. It
is probably only the greatly optimistic right-wingers who believe
speculators will lower prices.
I’m not an expert here, but when you buy a stock,
don’t you want the price to rise? Why would speculators sell
electricity cheaply when they can sell it for more? Obviously,
speculators, along with the generators who benefit from higher
wholesale prices, are swimming in record profits right now, while
northern California teeters on darkness.
This leads us to the predicament of the average Joe. With market
prices always fluctuating, it’s not hard to imagine that Joe
would find it difficult to pay the bill every month. If someone
investing in the energy market sees a 10 percent return on his
investment, that results in a 10 percent increase in Joe’s
electric bill.
Since Joe is average, he probably lives from month-to-month on a
tight budget with little leeway for his ballooning electric bill,
unless he taps Joe Jr.’s college fund. This direct
correlation is now causing many problems for middlemen like PG
& E and Edison who buy energy from the producers to sell to
Californians. Since utilities buy electricity in bulk, the rapid
price increases have left them without cash to purchase more power.
PG&E, for example, owes $580 million by Feb. 1 while it only
has $500 million in cash.
Even if they were to pay the bill, their lack of cash reserves
would leave them without credit to buy more electricity, leaving us
in the same place in a couple of weeks. Keep in mind that Edison
and PG & E, who both strongly supported deregulation, still
believe it is the right way to go.
Another troubling aspect of this debacle is its legality. When
the air-traffic controllers went on strike in the early
1980’s, they were fired for jeopardizing national safety. We
are now witnessing price gouging power generators in Texas and
blind middlemen like Edison and PG&E, who were unable to
foresee market fluctuations, put California on the brink of a
statewide emergency simply because of their appetites for
profit.
Soon, stoplights, street lamps, bed-ridden old women or even TVs
tuned to the brutality of WWF wrestling will not function because
somebody along the line wanted more money. This is a breach of one
of the fundamental laws of humanity where one individual puts his
desires above society’s, despite the cost.
Deregulation also left open a loophole that looks idiotic in
hindsight. This “loophole” allowed energy generators
such as Dynegy Inc. and Reliant Energy, both based in Texas, to
hold back supplies until they were badly needed, then allowed them
to charge more because of the high demand they created. These
actions mirror the 7-Eleven stores which doubled the price of water
immediately following the 1994 Northridge earthquake. This action
was foreseen by foes of deregulation but overlooked by the likes of
Pete Wilson. Perhaps the most troubling aspect of this issue is
that once again the public is left holding the bag.
We should not be surprised to see that when the possibility of
profit exists, it’s private, and public hands cannot go near
it unless we risk plunging into socialism. Conversely, when there
is an oil spill, utilities cannot pay their bills, or simply when
loss is at hand, it’s suddenly public. In this situation we
must socialize the costs because it benefits us all. Even less
comprehensible is the fact that companies like Edison expect us to
bail them out without repercussions.
If these companies are not fit to survive, either because of bad
decision making, volatile markets, or just high prices, then they
should not be in business in the first place. Any true
businessperson knows that all ventures have underlying risk; I
guess PG & E executives must have been absent that day in
business school.
As of Tuesday, the DWP was selling power to Edison. Since the
DWP is untouched by the current crisis, a good lesson can be
learned. The DWP, which is municipally owned, not only has power
for its own people, but it also has enough to sell to private
industry. Also, as of Tuesday, Edison and PG & E were both
relegated to junk bond status which effectively bars them from
borrowing more money from creditors. These companies have obviously
succumbed to natural selection and since the state needs to step
in, it might as well let them sink only to buy their assets at the
auction block after they declare bankruptcy.
The people of this state need to finally tell their government
that we will not bailout failing businesses anymore. They asked for
deregulation and received what they wanted. If tons of profits had
been made, the state would not see a dime of it. It’s time
for true public needs to be met by the government because
ultimately, the government is responsible to all of its citizens,
and not just a few thousand shareholders.