Privatised power blacks out California

FOR THE first time since World War Two the state of California imposed a black out of electricity supplies.

The state governor, Gray Davis, announced a state of emergency which meant a million people in the San Francisco Bay area had their power cut. It was only restored after emergency supplies were obtained from Canada, bought by public funds.

On Wednesday 17 January the state legislature approved a $400 million stop gap purchase of electricity supplies. Davis, using the state of emergency, ordered the spending of $1 billion to purchase out of state energy and supply it the private utilities. This has enraged many Californians who see the Democrat Governor as effectively feather-bedding those responsible for the crisis – the privatised supply utilities, Southern California Edison (SCE) and Pacific Gas and Electric (PG&E).

Davis has received more than $700,000 in political contributions from SCE and PG&E.

THE POWER crisis stems from the privatisation/deregulation of the industry in 1996 and is a graphic illustration of capitalism’s failure to meet people’s needs.

Demand for electricity has grown steadily in the last decade with the development of the hi-tech industries of the ‘new economy’. The prevalence today of computers in shops, businesses and homes and the accompanying air-conditioning units, has led to a surge in demand for power.

But the private utilities have not invested in any new generating plant in the 1990s. Many of the power plants are over 30 years old and in need of repair; as much as 25% of the grid is out action at any one time.

The utilities cite the state’s environmental laws as a disincentive to build more generating capacity. What they are really saying is that it’s not profitable to build cleaner power stations. As a result on 18 January the state had only 55% of the power it needed.

But buying in power from suppliers in other states has been costly. Not least because the growth in the economy and the population has increased demand for electricity throughout the US. And cold, dry weather in the Pacific North West has caused a water shortage on hydro-electric dams.

As the demand for power has outstripped supply, wholesale electricity prices have soared tenfold (producing a handsome profit for the power generators). The utilities passed on the costs to consumers but public outrage forced the state’s politicians last August to cap prices. However, in San Diego, which did away with price caps, prices tripled.

THE SCE and PG&E utilities debts have now grown to monster amounts, owing at least $11 billion. Because of these debts PG&E may have to cut off natural gas supplies to customers adding to the energy crisis.

On 16 January SCE defaulted on $600 million of debt repayments and on 17 January PG&E defaulted on $76 million causing ructions in financial markets. Ratings agencies have downgraded their debts to junk bond status.

An early casualty was Bank of America – the country’s biggest bank – whose unsecured loans to the utilities caused the heavy selling of its shares, the trading of which had to be temporarily suspended on 5 January.

The utilities are demanding a lifting of the price caps. Already California’s Public Utilities Commission has approved a price hike of 9% for domestic consumers and between 7%-15% for businesses – effectively making the public pay for the state’s failed deregulation policies.

The power crisis is causing a major economic and political crisis. According to The Independent (8/1/01): “The fiasco threatens to kill growth in the United States’ most dynamic state economy and possibly send shares on Wall Street crashing”.

Unemployment is set to rise as electricity prices soar. PG&E and SCE have started to fire or lay-off workers. Mark Zandi, chief economist at, predicts a downturn in the Californian economy if the power shortages last for three more weeks.

President George Bush’s incoming federal administration has offered no solutions. But the crisis is spreading to other states whose constituents face rising electricity prices because utilities are having to divert energy supplies to California.

The energy crisis shows the madness of the capitalist market economy and how the profit system is unable to meet people’s needs. Socialist Alternative, the Socialist Party’s sister organisation in the US, is campaigning for the nationalisation of the power companies under democratic workers’ control and management as the first step toward supplying cheap, continual and environmentally friendly energy.