-Caveat Lector-
Published on Sunday, July 1, 2001 in the Observer of London
Why the Lights Went Out All Over California
by Gregory Palast
Napoleon called England a nation of shopkeepers, but the Little
Corporal never tried to purchase dietary staples (organic milk,
Red Bull) from a Tesco Express. I tackled the manager as to why
they were out of stock AGAIN. 'It's Friday,' he said, as if that
were an unforeseen occurrence, like a rogue tidal wave that had
engulfed Upper Street and prevented deliveries. I began to explain
that 'Friday' is what accountants call a 'recurring event' and
HAVEN'T YOU BRITONS EVER HEARD OF COMPUTERS YOU KNOW THOSE THINGS
THAT LOOK LIKE TELEVISIONS WITH TYPEWRITERS ATTACHED... but, by
then, everyone was looking around at that despised figure, the
Complaining American.
So I hustled back to the land of plenty in time to hear the
Governor of California declare an end to the New World Order. Keep
in mind that George Bush's entire excuse for his polluters'
wet-dream of an energy plan - kick out the Kyoto treaty, drill the
Arctic for oil, bring nuclear power back from the crypt - hinged
on the premise that California had run out of energy.
Or had it? It's true that in December, lights went out all over
California. Power plants there run on natural gas and the price of
the stuff had mysteriously risen by 1,000 per cent in a single
week. This is odd given that over the state border at a pipeline
switching center called the Henry Hub, there was natural gas
aplenty at a fragment of the price.
The Golden State's Democratic Governor, Gray Davis, has an
explanation in the form of an internal document from the files of
the El Paso Pipeline company. It seems that when California
'deregulated' the gas pipeline market, an El Paso executive
speculated that if the company sold the pipeline capacity to its
own subsidiary, it could squeeze California by the light bulbs
anytime it reduced throughput. One corporate buyer calculates the
scheme cost California $3.7 billion.
Last week, three power plant engineers accused their employer,
Duke Energy, of virtually sabotaging one of their own plants by
'running it up and down like a yo-yo', shutting the plant on and
off. A state government consultant, Eugene Coyle, explained: 'It
wrecks the plants; it shortens their life enormously.'
Why would a company do that? The answer, say their accusers, is
that if it suddenly withholds power from the market, prices soar.
And if the plant breaks down, it's Christmas for the power
merchants, who can charge virtually any price for electricity from
their remaining plants.
Wholesale power prices have averaged $400 per MW hour, up from
less than $40 per MW hour in 1998, before California
'deregulated'.
A report by economist Dr Anjali Schreffin for the California grid
operator calculated that power merchants, through what are
politely called 'strategic bidding' methods, including 'physical
and economic withholding' of power supplies, have extracted $8.9bn
from California consumers in 'monopoly rents'. Now Governor Gray
wants them to pay it all back.
But listen to the gas and power sellers' side: El Paso Gas says it
opened and closed the pipe at times and prices set by the market.
Duke Power says the grid operator, its accuser, ordered them to
'yo-yo' their plants - because that's just how the bidding went.
So the core problem is not monopoly abuse of markets, but markets
themselves.
And Gray gets it. Besides demanding the $8.9bn, his regulators
have let one giant power company go bankrupt. Gray is
deprivatizing power lines across the state. And he is demanding
that Bush's watchdogs end their love affair with markets and
reregulate, telling gas and electricity merchants when, where and
at what price they sell.
For a decade the US has been selling the wonder of free markets to
the rest of the world. But it always exempted itself: 78 per cent
of the US is served by government water systems. Electricity
generation, even if in private hands, is strictly regulated.
In California, power companies and traders thought they could
bring home to the US the free-market methods they used to huge
profit in Brazil, Pakistan, Britain and other backwaters. If Gray
succeeds (he may be our next President) he will have pushed the
neo-liberal New World Order back into the sea.
h
