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States Deregulate Energy at Their Peril – from The New York Times

While reporters ogled celebrities at Barbra Streisand’s bungalow during the Democratic Convention in Los Angeles, there was a real display of populism 100 miles to the south in San Diego. There politicians have enrolled two million citizens in a scary economic experiment. This year, San Diego became the first city in California to experience the end of state regulation of electricity prices.
When California’s lawmakers voted to bring the miracle of market competition to electricity, they wrote into the law that homeowners’ bills would fall ”by at least 20 percent.” In fact, bills jumped 124 percent this August over last. Rather than repudiate this mad market experiment, the federal government and 24 other states, New York included, have rushed to imitate California’s lead.
Actually, Californians were lucky. Every hour of every day, San Diego Gas and Electric, the local utility, must now buy its electricity at a state auction known as a power pool. On the first hot day this summer, during the noonday heat, the companies that produce the power, newly deregulated, cranked up their bids to $9,999 per megawatt hour. That’s about 5,000 percent more than the once-controlled price of $20, but it could have been worse. According to those inside the secretive auction agency, sellers assumed the pool’s computers could handle only four-digit bids. In fact, the computers could have accepted bids for seven figures and bankrupted a chunk of the state in a day.
One can trace California’s electricity market plague largely to a single source, Daniel Fessler. In the early 1990’s, Mr. Fessler, then president of the state’s Public Utilities Commission, developed an infatuation with one of Margaret Thatcher’s free-market ventures: the troubled England-Wales Power Pool.
How strange. Britons pay about 70 percent more for electricity than Americans. That’s hardly a surprise, as each day around tea time, when England’s usage peaks, a small clique of power plant owners take over the electricity auction, bidding up prices by 200 to 2,000 percent.
In the United States, utilities vowed they would play no such tricks if California removed the limits on profits that have been at the core of regulation policy for the past 100 years. The promise lasted several months, during which time five giant international electricity sellers — all new to California — imported the techniques they’d learned in Britain: “stacking,” “cramming,” “phantom scheduling” and other maneuvers designed to manipulate the bidding process and in a single month produce profits once permitted for an entire year.
The deregulation bug is now winging eastward. New York City, for example, has succumbed to 43 percent average increases in Con Edison bills.
But in San Diego, something extraordinary happened. This month, thousands joined an unprecedented consumers’ boycott. The power companies can send out their bloated bills, but the tanned masses won’t pay. Refuseniks include the Council of Churches, the school district and — without a hint of shame — Steve Peace, a state senator who sponsored the deregulation law.
The electricity fiasco should be a godsend for Al Gore’s campaign. After all, it was Mr. Fessler and his fellow Republicans who threw California’s consumers to the meager mercies of the marketplace. And Gov. George W. Bush pushed through deregulation in Texas, which is widely expected to produce hefty returns for a former business partner, Sam Wyly, owner of, a power seller.
But while Mr. Gore spoke out in Los Angeles against ”powerful forces,” on this subject he’s in a difficult position. Despite recent warnings from federal regulators about the California situation, the Clinton-Gore administration has promoted California-style deregulation as a model for the nation.
Someone’s ready to feel California’s pain, and it may not be good news for Mr. Gore. During the Democrats’ big show, Ralph Nader went to San Diego to remind boycotters that he was founding father of the Utility Consumer Action Network, the 46,000-member local group leading the anti-corporate uprising.
Electricity is the first big United States industry formerly under the tight control of states to be opened up to international operators and their free market rules. For the first time, Americans feel the bite of real globalization, and don’t like it one bit.
Gregory Palast writes the award-winning column, “Inside Corporate America” fortnightly in Britain’s Sunday newspaper, The Observer, part of the Guardian Media Plan. For comments or request for reprint, contact

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