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March 2005 IBEW Journal
After the 2001 meltdown that sparked
soaring prices and rolling blackouts, exposing Californias
electricity deregulation plan as a gargantuan folly,
state legislators temporarily disabled the law. Last
fall, California Governor Arnold Schwarzenegger had
a chance to stop electricity deregulation once and
for all by signing a bill passed by the state legislature
that revoked the market-based approach. The bill
had the strong backing of the IBEW and many utility
industry stakeholders.
Instead, he vetoed the legislation, paving the way
for his own "hybrid" deregulation plan that
has Californians suffering flashbacks from four years
ago and observers wondering if its a signal of the
national reemergence of electricity deregulation.
Californias flirtation with a new form of deregulation
comes at the same time an influential conservative
organization denounces it, and industry groupsonce
restructurings largest backerschallenge it on the
federal level. Many states are grappling with deregulations
legacy: higher prices, less reliability and the possibility
of another blackout like the one that struck the Northeast
in 2003.
"Apparently we still havent learned the costly
lessons of a market-based approach to delivering electricity," said
IBEW International President Edwin D. Hill. "Garbage
in new and improved packaging is still garbage."
Deregulations Toll on Utility Industry
Before utility deregulation came along in the early
1990s, electricity was a solid, steady industry. Regional
utilities, which generally owned generation plants,
were responsible for transmission and distribution
to customers. Utilities petitioned for rate increases
and permission to build power plants from state commissions.
Customers received the power they needed and companies
made a profit.
The Energy Policy Act of 1992 broke up the comfortable
balance, allowing power producers to generate electricity
and sell it to transmission companies. Electricity
deregulation appealed the most to the Northeast and
California, where electricity prices were high. Industry
and government officials in such high-cost states found
in the theory of electricity deregulation an alternative
that offered competition, and thus the possibility
of lower prices. It never worked.
The national legislation allowing for deregulation
threw the system, so-called vertical integration, on
its head. Electricity providers, sometimes hundreds
of miles away from users, compete in the market to
sell power. With a national law in place, each state
went about crafting its own deregulation laws. In California,
utilities were forced to sell their generation plants.
Other states, particularly Southern states where electricity
was fairly cheap, resisted deregulation altogether.
Deregulation offered more opportunities for profit
taking and market manipulation than it did for lower
prices for consumers. Utilities whose priority had
once been to provide reliable service now were chiefly
concerned with the bottom line. Accountants and corporate
manipulators replaced longtime industry professionals
heading utilities. Competition resulted in cost cutting.
Worker training programs and maintenance budgets were
slashed. The industry has lost 150,000 jobs since deregulation.
"The objective was no longer serving the customer,
but making money," said Jack Casazza, a lineman
and former utility industry executive now heading Power
Engineers Supporting Truth (PEST), a group of 200 industry
professionals formed after the 2003 blackout. "That
was the real harm done by deregulation."
Casazzas group and the IBEW maintain that deregulation
was the ultimate culprit responsible for the August
2003 blackout that shut down the grid in eight Northeastern
states and part of Canada. In January, PEST published
an in-depth explanation for the blackout titled "Blackouts
and Blunders: The Failure of Electric Power Policies
in the United States" that spreads the blame throughout
the industry, from the government that has abdicated
its responsibilities to the energy users, to the industry
itself. The report also includes a list of recommendations
to improve the reliability of the system.
PEST maintains the government investigation covered
up the real reason for the blackout and warns that
the system will face more outages if the industry does
not confront the challenges that a market-based approach
created: a shortage of qualified utility workers, maintenance
budgets set dangerously low and a government-sanctioned
environment that values profit-taking over service.
The cost to consumers, Casazza estimates, is $30 billion
a year.
"Our electric system is not that of a Third World
country, but it could become so if market enhancement
and market structure remain the dominant driving force," the
PEST report says. "The authors of the Department
of Energy blackout report, however, continue to worship
at the altar of market forces. One only need look as
far as California to have doubts about the ability
of government and industry to set up and run an open
and transparent market for electricity."
Even a libertarian Washington think tank believes
that deregulation has been botched. In a policy analysis
by the Washington, D.C.-based Cato Institute titled "Rethinking
Electricity Restructuring," the authors recommend "total
abandonment" of restructuring in its current form
but a truer embrace of markets. Failing that, they
offer a second-best alternative for "those states
that have already embraced restructuring to return
to an updated version of the old, vertically integrated,
regulated status quo." The analysis is telling
as much for its conclusions as its source. The Cato
Institute champions limited government and free markets,
two ideals utility deregulations proponents touted
as beneficial both to consumers and electricity providers.
A group of large industrial users in Ohio, Pennsylvania,
Connecticut and West Virginia have banded together
to challenge the Federal Energy and Regulatory Commission
for deeming the electricity prices deregulated providers
charge the users "just and reasonable." And
another complaint against FERC, the agency that oversees
the industry, calls into question FERCs longtime insistence
that market rates are just and reasonable.
"California proved to us that unregulated market
rates are not just and reasonable because electricity
providers manipulated the market," said IBEW Utility
Department Director Jim Hunter. "Everyone including
the utilities is now realizing that deregulation is
a failure and that independent power providerswho
only exist because of deregulationare the only ones
who say we should move forward with it."
California Dreamin
The deeply flawed deregulation law in California required
utilities to sell their generation plants, then buy
electricity back from merchant generators at astoundingly
high prices. Californias market manipulations by the
likes of Enron and others are a well-documented failure
that cost residents $70 billion. But four years later,
Gov. Schwarzenegger is debuting a new variation on
the old theme. His business-supported plan calls for
a free-market, partially deregulated approach they
say would spur private investment, lower prices and
increase supplies. Critics are skeptical of Schwarzeneggers
proposal to eliminate a rate cap that shields about
60 percent of the states smallest residential customers
from the price hikes.
California IBEW members, unified under a 10-year-old
group called the California Coalition of Utility Employees
(CCUE), are watching closely. "Weve already been
there. Its appalling they would even go down that
path again after what happened a few years ago," said
Diamond Bar Local
47 Business Manager Patrick Lavin, an International
Executive Council member. "They damn near bankrupted
the state."
Since the governor has twice vetoed legislation that
would outlaw deregulation, CCUE and others have mounted
an effort to take the issue to the people, in true
California fashionas a ballot initiative. "We
are gearing up for a big fight coming up here," Lavin
said. "He may be the most popular governor we
have ever had but he wont be very long if he continues
to pursue deregulation."
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