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Why The Lights Went Out All Over California

America Preached The Wonders of Free Markets to The Rest of The World
But Exempted Itself — Until Last Year

Sunday July 1, 2001
The Observer
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 centre called the Henry Hub, there was natural gas aplenty at a fragment of the price.
The Golden State’s Democratic Governor, Gary 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 deprivatising 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.
Gregory Palast’s other investigative reports can be found at where you can also subscribe to Palast’s column.
Gregory Palast’s column “Inside Corporate America” appears fortnightly in the
Observer’s Business section. Nominated Business Writer of the Year (UK Press
Association – 2000), Investigative Story of the Year (Industrial. Society – 1999), Financial Times David Thomas Prize (1998).

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