May 1 2001

Deregulation Blackout

How media hype California's fake energy crisis

Power shortage! Unavoidable blackouts! Too much environmental regulation! All these media themes about the electric crisis in California have one thing in common: They are utterly false.

Seldom have establishment media gone through greater contortions to misrepresent a crisis on behalf of the mega-corporations that made it happen. Of course, there’s usually not as much money at stake–upwards of $200 billion or more by the time we’re through.

The fake story, repeated in a thousand news headlines, and beat to death week after week by the bloviating punditocracy, goes something like this:

Too many people and too much industry moved into California, causing electric demand to soar. But environmentalists clamped down with extreme regulations, making it impossible to build enough generating capacity. Meanwhile, the state legislature did a good thing by deregulating, to bring in competition. But it caused a catastrophe by not deregulating enough, and putting a cap on consumer rates. If only true competition had been allowed, everything would have been great.

Throughout most of the California electricity “crisis,” it has been difficult to find a story in the mainstream media that didn’t rely on one or more of these myths. The New York Times (1/25/01) summed up the inaccurate conventional wisdom: “Demand for electricity outpaced older power plants, while a botched experiment with partial price deregulation and longstanding environmental opposition combined to create disincentives to build new power plants or create cheaper wholesale prices through competition.”

The magic of the market

Though it’s seldom noted in media accounts, California’s deregulation scheme was not forced upon the electric utilities, but was the brainchild of John Bryson, head of Southern California Edison. In 1996, Bryson’s attorneys drafted the current deregulation law (AB 1890), which was presented to and passed by the legislature within three weeks. Its premise was simple: If the ratepayers would hand the utilities up to $28.5 billion for nuclear reactor investments they said were “uncompetitive,” the utilities would give up their regulated monopolies and “compete” with other power producers.

One might expect the mastermind of California’s disastrous electrical experiment to be scrutinized by the press corps, but major media have given Bryson a facile free pass. “Everyone agrees there are no heroes in this California power crisis, and that it was brought on by good intentions and some bonehead decisions,” NBC’s Tom Brokaw began as he interviewed Bryson (1/26/01). But “bonehead” is far too kind a word for Bryson, who Brokaw described as “caught in the middle” of the crisis. In fact, as the key force behind the deregulation law, Bryson has been a major perpetrator.

After triumphing over Proposition 9, a 1998 ballot initiative backed by public interest and environmental groups that sought to roll back some of the deregulation scheme, Bryson and other utility leaders made a crucial miscalculation that has opened the door to a second mega-ripoff: They failed to freeze wholesale rates, which were deregulated in the early 1990s.

In the summer of 2000, the second shoe dropped: In a series of suspicious coincidences, a wave of shortages suddenly hit the California grid. Consumer prices in San Diego skyrocketed (the freeze there had been lifted because the local utility had received its full bailout). In the rest of the state, the utilities were caught in a vice of their own making, forced to sell power to consumers at frozen rates while being gouged by the power producers federal bureaucrats were refusing to regulate.

It was here that national media chimed in. The crisis, they said in virtual unison, was caused by a massive rise in electric demand, by the refusal of the environmental community to allow new power plants to be built, and by the cap on consumer rates which had been forced on the hapless utilities by a demanding public.

On January 29, Robert Samuelson wrote a lengthy analysis of the crisis for Newsweek. His coverage turned on the assertion that “once surging demand began to collide with fixed supply, the new [deregulated] system raised spot prices and drove the old utilities toward bankruptcy.”

That “surging demand” is where most media accounts begin. Time’s explanation (1/29/01) was typical: “California’s power demand has grown nearly 25 percent since 1995, far in excess of the state’s relatively small additions to capacity.” That’s what the numbers provided by industry groups like the Edison Electric Institute say, anyway. Independent evaluations of energy use in California undermine the idea that demand skyrocketed.

A Public Citizen study of data collected by the California Independent System Operator found that for four months in 2000, electricity demand was actually lower than it had been in 1999, and that overall there did not appear to be a major increase in demand across the state. But this puncturing of one of the major assumptions of the California energy story was virtually ignored by the press.

The San Francisco Chronicle’s own analysis of electricity demand (3/11/01) came to a similar conclusion: that a mild increase in demand should not have posed a significant threat to the state. While the Chronicle found that the oft-repeated claims of skyrocketing demand a “myth,” the rest of the media seemed largely uninterested: An Associated Press dispatch (3/11/01) summarizing the Chronicle’s report did not appear to generate any media interest at all.

That wasn’t deregulation!

It’s an article of faith in mainstream reporting that deregulation will lower prices and improve service. While California would appear to deal a mortal blow to that piece of conventional wisdom, the media’s fall-back position was established early on: What happened in California wasn’t “real” deregulation.

On January 21, the Washington Post editorialized against “halfhearted deregulation,” while Time (1/29/01) explained that “a market place that is only partly free is a prescription for complete disaster.” An exasperated Ted Koppel (Nightline, 1/24/01) captured the frustration of many reporters best: “But how in heaven’s name can anyone believe that you can put a price ceiling on the retail price and have no price ceiling on the wholesale price, and not in times of shortage expect it to go totally out of kilter?”

In fact, it was the utilities themselves that engineered that freeze. They set rates at 50 percent above the national average and funded a fake “discount” with a bond issue that will soak ratepayers with high-interest paybacks for years to come—a giant rip-off that falls below today’s media radar screens. The utility companies set those rates in part to guarantee a huge bailout for their ill-advised investments. (“California’s Deregulation Disaster,” The Nation, 2/12/01) With little media scrutiny, they have so far laundered more than $20 billion in these “stranded costs” from the ratepayers to their parent companies.

To his credit, Newsweek’s Samuelson noted in his January 29 piece that “new power companies have manipulated the spot market.” Many other reporters and commentators have hedged their bets on that point. But the facts are clear: Enron, Reliant and the other friends of Bush who control the California power supply at its crucial margins have used their leverage to reap billions.

Far from being blamed for California’s woes, Texas is occasionally touted as a model of efficiency. According to CBS Evening News (1/23/01), “If there is one place in the nation that’s found a workable solution, it’s Texas. Years ago, the Lone Star State decided to go into the electric power business alone–its own grid, no conflicts with neighboring states, fewer government regulations.” To CBS, the fact that Texas energy companies are making huge profits from California’s problems wasn’t worth mentioning.

A green problem?

Newsweek’s Samuelson embraced the conventional (and mistaken) view that blames the environmental community for the non-problem of electric supply. “If you want cheap power,” he wrote (1/29/01), “you have to build power plants…. If you want to curb pollution and global warming, you can’t have cheap power.”

This couldn’t be more false. Had the huge nuclear plants opposed by the environmental community not been built, and had their astronomical capital costs gone instead into renewable energy and efficiency, the California crisis would never have happened.

On January 29, John Greenwald of Time added another cavalier but misinformed dig, writing that California’s “environmental laws make it a utility builder’s nemesis.” Like many other mainstream reporters, Greenwald totally ignored the Golden State’s rich history as a pioneer in renewables, dating back to the late 1970s, when Gov. Jerry Brown fostered the tax credits that spurred the construction of more than 15,000 windmills.

There were problems with many of them. But in the early 1980s, California generated 95 percent of the world’s wind-driven electricity. Solar energy was also coming on strong, as were increased efficiency and conservation. There was nothing in the state’s environmental laws that prevented the progression to exactly where it needed to go–an energy economy based on sun, wind and advanced technology. Unfortunately, the state’s laws were insufficient to stop construction of the Diablo Canyon and San Onofre nukes, which are at the heart of today’s crisis.

Further, Greenwald and virtually all other mainstream reporters fail to note that Southern California Edison and the state’s other big utilities campaigned successfully in the early 1990s to prevent large-scale construction of new wind, solar and other clean generating facilities–so as not to diminish the value of their own fossil-nuclear investments. It was that campaign, not strict environmental laws, that left the state’s power supply vulnerable to out-of-state producers.

Can it spread?

One common media fear: that California’s problems could “spread.” A March 9 front page New York Times story by Tod Berenson links New York’s power problems with those of California. It quotes Consolidated Edison chair Eugene McGrath warning that New York can only avoid future blackouts by building more power plants.

But the story quotes no sources advocating increased efficiency or renewables as an answer to future energy needs. Nor does it cite the billions wasted on the dangerous, inefficient Indian Point reactors that threaten the region 16 miles north of the metropolis. If anything will cripple New York’s ability to cope with future energy needs, it will be the insistence by its private utilities that they be compensated for Indian Point and the other horrendously wasteful nuclear plants they built.

Nonetheless, media accounts from outside California hold fast to the idea that California’s chief problem was its failure to bill citizens for the deregulatory disaster. Further into his story, Berenson matter-of-factly writes that “California caps its consumers’ rates, and that is why its utilities, unable to pass on runaway wholesale costs, totter near bankruptcy and are relying on the state to buy power for them. New York, however, allows Con Ed to pass on its costs to ratepayers—the most crucial difference in the ways the two states deregulated.”

What Berenson fails to say is: “God help the ratepayers of New York.”

The irony of efficient public powerReporting from Los Angeles on January 25, the New York Times‘ Todd Purdum gives a passing mention to the hidden answer to the whole problem. “One of the oddities of the crisis,” he writes, “is that Los Angeles, the state’s largest city and its most economically and culturally dominant one, has been largely immune, since its municipal utility, the Department of Water and Power, was not subject to deregulation, and has its own sources of generation, and has sold hundreds of millions of dollars worth of surplus electricity for use in other parts of the state.”

This glancing reference to the LADWP embodies perhaps the greatest untold story of the entire disaster. Throughout the crisis, while private utilities have driven California to the brink of ruin, its two major public-owned utilities have thrived. The LADWP and the Sacramento Municipal Utility District have provided their customers with cheap, reliable power throughout, and, as mentioned, have even sold surpluses to the rest of the state.

Why? Because they are owned by the public, and their mission is to serve it rather than accumulate huge profits. Indeed, any sane newspaper would be reporting the crisis as a case study in why public power works and why unregulated private utilities do not.

Media “solutions”

But now the media are standing by with still more misinformation as phase three of the rip-off kicks in. Barreling toward Congress is a series of catastrophic energy bills designed to promote more drilling for gas and oil, and more subsidies for nuclear power, all in the name of avoiding “another California crisis.”

In fact, oil from the Alaska National Wildlife Refuge or anywhere else will have no impact whatsoever on California. Only a tiny portion of the electricity used by California or the nation comes from burning oil.

The California “crisis” has even renewed calls for a return to nuclear power, ignoring that bad investments in nuclear energy are what got California where it is in the first place. NBC Nightly News gave this endorsement on March 18: “Nuclear power is a bargain compared to fossil fuel sources, especially natural gas. And nuclear power plants now produce more electricity than ever before–20 percent of the nation’s total–and now the prospect of making electricity and profits for years to come.” Further down in the report came the disclosure: NBC parent company General Electric stood to gain from this new round of nuclear speculation.

Meanwhile, the large scale wind, solar, efficiency and conservation technologies that could have prevented all this from happening remain unbuilt.

But by the time you read these simple facts in the major media, or see them discussed on the Sunday talk shows, hell will probably have frozen over. And they’ll be arguing that more nukes are needed to thaw the place out.

Harvey Wasserman is the author of The Last Energy War: The Battle Over Utility Deregulation (Seven Stories). He is senior adviser to Greenpeace USA and the Nuclear Information & Resource Service.