Report given to the National Board

Power Cartel
to Blame for California Energy Crisis

On Sunday,
Sam, Juan and I met with a friend who is in the daily thick of the power
crisis in California. Before that, I had discussions with another friend
in the thick of the power struggle in a different but also critical arena.
I also have had exchanges with a leader of the Utility Workers Union.

Put together,
these discussions made evident how complex the crisis in California is.
When you meet with the experts, you realize how little you know. You don’t
get the full scope just by reading newspapers. These discussions with
our friends help tremendously, which emphasizes how important it is for
the Party to be connected to coalitions and leaders.

This crisis
requires more thinking, research, analysis than this report is going to
give. Frankly, the underpinnings are very complex and confusing. But we
have to start somewhere so I am taking a plunge to get our work going.
I’m sure the Board discussion will further our assessment and action proposals.

An Energy
Disaster

The energy crisis in California is a disaster. It takes on terrible dimensions
each day. It is not only electric power. There are gas shortages now and
serious water shortages are predicted. These shortages will worsen the
already grave power crisis.

You don’t
hear too much about the human dimension of the crisis. The papers tell
the story in broad strokes. They speak of consumer price hikes. But picture
the faces of millions — working families, seniors on fixed incomes, those
who live in poverty — who are experiencing electricity and now gas bills,
which are doubling, tripling and more. When I stayed with Bobbie in the
Bay area during my stay for the last two days, she showed me her bills.
She has not increased her usage of gas. Yet, just between last month and
this, her bill went up from $58.00 to $98.00.

That’s on
top of increases every month over the last months. Millions are getting
bills like that. In San Diego, which was where the crisis started, the
electricity bills went up 300%.

Those who
live in poverty have it worse. They are now having to make decisions between
letting their lights go off or buy their children the new shoes they need
or school supplies. Even worse they have to choose between paying the
electricity bill or buying food or paying the rent.

Never before
in history have we had Stage 3 power alerts, which are alerts that the
lights could go off, but now we have a statewide backdrop of daily Stage
3 electricity emergencies in California.

The state
has experienced rolling power outages that have not been seen since World
War II. These are life-threatening outages even though they are temporary;
power could go off which runs equipment that keeps people alive. Security
is jeopardized. Accidents increase.

Layoffs of
workers came along with the crisis. Southern California Edison sent 1400
workers home for good. Plant closures are on the horizon with manufacturing
workers losing their jobs. Small businesses could topple, which puts more
workers out on the streets.

A Disaster
Made by Capitalism

This is not
a natural disaster; it is a disaster created by capitalism. It is one
of the ugliest, most despicable faces of capitalism. Deregulation, privatization
and the free market have taken essential resources necessary for the survival
of people, for the survival of our country, and used them against the
people in order to make profit windfalls for already powerful corporations.

Examining
how the power industry corporations have manipulated supply, maneuvered
around the laws, corrupted or duped legislators into going into collusion
with them is a 101 lesson in 21st Century style-imperialism the highest
stage of capitalism.

Government
bodies have passed laws and regulations that have allowed the power industry
corporations to get away with profit murder. There has been an orchestrated
plan of financing elected officials to be there to help these corporations
when their dirty work is exposed.

Revelations
are emerging every week about how private energy corporations, their subsidiaries,
their holding companies, schedulers, etc., have manipulated supply and
schemed in order to squeeze out maximum profits at the expense of working
people, the poor, small businesses, seniors–the majority of people of
California.

A National
Emergency

The energy
crisis in California is in the eye of the energy storm. It is the starting
point of what is beginning to spread across the country. It is intensifying
the economic crisis. It is an emergency situation that affects the nation.

The Bush
administration’s failure to put a cap on wholesale prices by the power
generators discloses the coming pro corporate national energy policy of
the extreme right. That policy will facilitate the gorging of profits
by the private energy industry.

The Federal
Energy Regulation Commission (FERC) also has done nothing to stop the
power sellers from charging the highest wholesale prices in history. The
Bush administration and FERC are calling on the rest of the nation to
abandon California, blaming state regulators for the problem. But this
is more than a California energy crisis, it’s one of those, "If they
come for California in the morning, they will be coming for you at night"
scenarios which requires national protest.

If federal
government policy allows corporations to get away with their pillaging
of California consumers, that policy will eventually affect the whole
nation. The regional nature of the electricity grid and market has already
led to dramatic increases in rates in the surrounding states. Even though
there is no deregulation in Washington, Oregon and Montana, the California
crisis-driven rate hikes have led to thousands of layoffs in those states.
Consumers across the country have been feeling the pinch of rising electricity
and gas prices during the winter. The summer will bring on even more.
How the crisis is solved in California will have a national and international
affect.

The counter
side of the crisis is that not since the New Deal has the demand for public
ownership become such a popular demand. The demand has emerged in every
arena of the California battle, from the legislature to the streets. Governor
Davis himself was forced to place public ownership as an option in his
State of the State address a few weeks ago. Proposals for public takeover
of power plants, the transmission grid system, and the utilities have
become a total part of the debate.

The Power
Cartel

Our friends
emphasized that the main cause of the crisis comes from a cartel of power
generators that are based outside of California. Enron Corporation, Dynegy
Inc., and Reliant Energy–all based in Houston, Texas–and Duke Energy,
based in Charlotte, North Carolina, are the heavy hitter members of the
power cartel.

Daniel Berman,
the co-founder of the Coalition for Local Power in Davis, California calls
these corporations based in the south, the "Confederate Cartel."

The underground
workings of this power cartel have schemed and manipulated the ripping
off of profits from consumers using the cover of deregulation in California.
But the cartel is not just a problem for California, it is a powerful
grouping which functions nationwide and all over the globe.

Enron is
the leader of the pact. They were the biggest promoters and motor for
deregulation. The CEO of Enron, Kenneth Lay, has had long time connections
to the Bush family. He was formally an official energy advisor to the
first Bush administration and is an advisor to the new one. One utility
executive said, "You hear his [Lay’s] thoughts coming out of Dubya’s
mouth when he speaks about energy." Lay is also the biggest fundraiser
for Dubya.

Enron built
its fortune by exploiting gas markets after gas deregulation. Its revenue
shot up to $100.8 billion in 2000 from $40.1 billion in 1999. Almost the
entire increase came from buying and selling contracts in natural gas
and electricity.

Enron uses
new "21st Century" methods for extracting profits, including
global competition on the Internet. It is considered the best and most
profitable model for the energy industry of today.

According
to an article in the Los Angeles Times, one of the new methods is the
concept of "optionality," which means that "a business
uses access to many customers and suppliers to minimize risk and maximize
value in any transaction. An electric company, for example, might not
use a power plant to generate maximum electricity, if selling the plant’s
natural gas fuel could bring a higher price at that moment."

This exploitation
of temporary differences between gas and electric markets, technically
called arbitrage, results in the selling of gas or electricity based on
what is most profitable, not on what the needs are of society at that
moment.

The many
forms of manipulation of supply that led to the crisis in California,
included the turning off generators for maintenance to create an artificial
shortage to enable members of the cartel to drive prices sky high.

The Utilities

The utilities
companies bought into deregulation because they saw a profit in it for
themselves and they played the corporate manipulation game as well. They
sent their profits from their deregulation good times, when consumers
were paying rates higher than cost, to their parent companies out of state.

These billions
of dollars could have been used by utilities to pay their bills owed to
the power generators but since the profits are in the hands of the parent
companies, they cannot be used to solve the crisis. Instead, consumers
are being given higher rates and a $10 billion bond, which their children
and grandchildren will have to pay back in the years to come. The Public
Utilities Commission decided this week to go after the utilities for possibly
violating the law in doing this. So, for the first time, the Commission
is trying to see if they can get that money back from the parent companies.

Again, here’s
where the federal government plays a role. George W. could facilitate
getting the profits back to California to help consumers or let the parent
companies keep the profits. As of now, he has decided not to help consumers.
Instead, Dubya is saying the free market will work out the problem for
the nation, and California should solve the problem it created.

One of the
things that our friend pointed out is that the utilities industries, Southern
California Edison and Pacific Gas & Electric in the first place, took
the hit in the competition of corporations for more profits. They are
in fact going bankrupt. In the capitalist market, competition causes corporations
to go down also, even huge ones. It is the power generators, the cartel,
that is the big winner in this crisis.

I don’t think
we should have a lot of sympathy for the utility companies since they
were part of the conspiracy, lock stock and barrel, in many ways, shapes
and forms. They lost their gamble. But our friend points out that when
they go bankrupt it is the power generating companies that will take them
over from outside the state without California’s political control.

The exposé
of the role of Enron, Reliant, etc. has been revealed in media articles
but it has not been highlighted. Exposing the cartel, and the whole capitalist
interconnection between these corporations and the Republican Party, President
Bush and not in the same way, but also the Democratic Party, should be
something that we help to do.

An Alert
to America

This is an
alert to America. United States-based global corporations are ripping
off an essential resource to make profits for themselves. In the course
they are wreacking havoc on workers, the poor, small businesses, small
farms, even other big corporations.

Exposing
their role is not only an indictment against capitalism but is the basis
for arguing for public ownership in California and public takeover of
the energy industry in the United States. Private corporations cannot
be trusted with people’s essentials of living — gas, electricity, water.

Power
to the People!

The fact
is that cities like Los Angeles are not facing the same crisis because
the city refused to sell their power plants when state deregulation laws
hit. Water and power are publicly owned in Los Angeles and under the public
authority of the Department of Water and Power. Public ownership is profitable
and keeps the rates down. Sacramento, Pasadena, Burbank and other cities
have public ownership and they are faring better in the crisis with lower
rates and uninterrupted power to their consumers.

If the crisis
continues unchecked, those cities will feel the crisis as well. It’s just
a matter of time. That is why the main demand should be for state ownership
of the energy industry rather than municipal ownership. Municipal ownership
in the long run will create competition between cities. State ownership
under the jurisdiction of a Public Power Authority can coordinate the
whole state, including local public ownership insuring that everyone is
taken care of.

Political
Underpinnings

There are
political underpinnings. The Bush administration, representing the extreme
right, is trying to put the crisis onto the backs of Democrats in California.
Their aim is to undermine the tremendous electoral gains in California
made as a result of labor/community electoral coalition in the state.

Even though
the Democrats are part of the problem and deserve sharp criticism, we
have to be careful not to fall into the Democrat-bashing bag. As in the
2000 election, there are those who are leading protests on the energy
crisis pointing the main finger at Governor Davis and the Democrats while
letting Republicans off the hook.

Focus
on Dubya

George W.’s
ties to the Enron Corporation are a central and driving feature of the
crisis. While Enron’s profits are soaring to the tune of $777 million
in the fourth quarter of 2000,almost triple of what it made a year earlier,
Bush refuses to intervene to help Californians. Adding to what was said
earlier about Kenneth Lay, Enron’s CEO, Lay served on then Governor Bush’s
business council, which gave advice on deregulating electric utilities
and tax breaks for businesses. According to the Los Angeles Times, Lay
recently had discussions with Energy Secretary Spencer Abraham and Treasury
Secretary Paul H. O’Neill about California’s energy crisis.

Another piece
of the energy crisis puzzle is a look at the personnel of the Bush administration
who have unprecedented connections to the energy industry. Vice President
Cheney, Bush’s Commerce Secretary and National Security Advisor are all
closely tied to the energy industry. Bush himself comes from the oil industry.

Deregulation:
A Republican Party Priority

Deregulation
in California was actually enacted by Republican Governor Pete Wilson’s
Public Utilities Commission in December 1995. It still needed endorsement
of the legislature, which at the time was controlled by Republicans in
the Assembly with Democrats holding a bare majority in the State Senate.

The author
of the legislation (AB 1890) was Assemblyman Jim Brulte, who is now a
Republican State Senator and Bush’s chief California operative. Democrats
were suckered into voting for deregulation but Republicans drove it.
People’s street heat demanding that Bush put a federal cap on power wholesale
prices, which he and the Federal Energy Regulatory Commission have refused
to do, is a critical demand that puts the heat on Bush.

Deregulation
and Public Ownership Now!

Governor
Davis and the Democrats are placing their solutions within the framework
of keeping deregulation and that is a problem. Reregulation is a major
demand that we have to place, much stronger than we have up until now.

The $600
million bond to purchase power by California passed by the legislature
and approved by Governor Davis is not the long-range solution. Public
ownership is. We should support all legislation that goes in that direction.
That includes Senator Burton’s (D-San Francisco) bill for state ownership
of the power transmission grid. The state can also use its power of eminent
domain to take control of power generating plants. Public ownership should
include the preservation of union jobs. The existing workforce should
be used for all operation, maintenance, and construction of power plants.
Collective bargaining agreements should be recognized. A California Public
Power Authority should be established with oversight of the industry.

Emergency
Steps in Our Party

We have to
have an emergency response to this emergency crisis. All states are now
feeling what has grown into a national energy crisis so we need an approach
to the crisis at all levels–federal, state, local and neighborhood.

We in California
have now agreed to take an emergency approach. We will hold our first
statewide meeting to coordinate our efforts. Northern California had an
expanded Board meeting last Saturday and Southern California will have
an expanded District Committee meeting this weekend.

Labor led, All People’s Anti-Monopoly Movement

Our main
goal should be to help build a broad all-people’s labor led/anti-monopoly
movement in California and across the country. If any moment exposes monopoly,
it is this moment, it is this crisis. We need to help the labor and civil
rights movements, organizations representing the poor, small businesses,
small farmers to join forces with consumers’ organizations, environmentalists
and others to fight for energy justice demands. The cartel is a threat
to other corporations big and small and some of these could be drawn into
the movement.

We have to
call for public ownership of the energy industry, for reregulation. But
we also need to develop a program that calls for other immediate demands,
including a federal cap on wholesale prices which Bush and the Federal
Energy Regulatory Commission are refusing to do.

Low Rates
& No Shut Offs!

This is a
power cartel-created crisis for which consumers and small businesses should
not have to pay. Rates should be rolled back to pre-crisis levels.

Understanding
that it is low income households and those who live in poverty who will
suffer the worst means that emergency legislation is needed to insure
the poor have affordable rates in order to be able to survive. An immediate
moratorium on electricity and gas shut offs should be established. A moratorium
on evictions for the poor is needed. More food banks should be set up
to make up for higher electricity rates.

We need to
look into the question of environmentally safe methods of producing energy.
We need to include a people’s program for energy conservation.

In addition
to these immediate steps, we should set up a special committee that continues
to stay on top of the energy crisis from now on. We need to develop a
Party program on the energy crisis that includes the preceding demands.
This should be a major issue at our National Convention.

We also need
more research on the power cartel and the energy corporations — their
role in California, the nation and internationally. We need to expose
Bush’s role in this. We need to expose the crisis as part of the Republican
Party energy policy run by Enron and the cartel.

We need ongoing
coverage in the PWW of the crisis in California and around the country.

A Global
Dimension

This movement
will create an atmosphere for building popular support for the concept
of public ownership. It will lend itself to the call for public ownership
in other industries like steel and auto. And there is an international
dimension to this crisis that I want to indicate for your consideration
before I end this report.

John Bryson,
CEO of Edison International, the holding company that owns Southern California
Edison, has said that in ten years there will be only ten energy conglomerates
left standing worldwide. He said he hoped Edison would be one of them.

Also, data
compiled by the Federal Energy Regulatory Commission shows there were
55 applications for mergers from January 1996 through July 2000.

None were
disapproved; 44 have been approved.

The struggle
for energy is global. There should be no doubt… this battle is a big
one.

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