The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

The California "electricity crisis" of 2000-2001:
A contrived shortage to hike prices

Aug 25, 2003

Electricity was barely restored in all areas affected by the 2003 blackout in the Midwest, Northeast and Ontario, Canada when power companies began to demand rate increases. This will have a familiar ring in California where, during the "electricity crisis" of 2000-2001, blackouts went hand-in-hand with increased prices.

In the spring of 2000, "rolling blackouts" hit California, cutting off power to 100,000 customers. The wholesale price of electricity on California's deregulated energy market suddenly rose five-fold, from $30 to $150 per megawatt-hour.

Needless to say, the profits of the companies that generated and traded electricity shot through the roof. The seven largest generating companies, which produced 40% of California's power, increased their quarterly profits in 2000 as much as 700% over the year before. Electricity trader Enron Corp., one of the leading advocates of deregulation as well as one of its biggest profiteers, became number seven in the "Fortune 500" in 2000 – a much-publicized rise for a company which was number 94 only four years before.

A similar scenario was played out in late 2000 and early 2001, when more than a million Californians were affected by rolling blackouts, and wholesale prices spiked up to almost $300 per megawatt-hour!

Power companies, politicians and media "experts" all said that the electricity shortage and the astronomical price hikes which came with it were the results of increased use of electricity due to the weather being "unusually hot."

This was a lie. In fact, the whole "crisis" was created by the electricity companies themselves. During the spring and summer of 2000, for example, the highest electricity demand in California was 45,600 megawatts, way below the 60,000-megawatt capacity available to the state. BUT, an unusually large number of plants were down for maintenance and repairs – all at the same time. The companies had deliberately waited to shut their plants off until the hot summer days, when they knew the demand for power would be the greatest.

How do we know this? During investigations after the collapse of Enron, for example, California officials revealed that company executives knew about the price hikes ahead of time. Months before the "unexpected" energy shortages, Enron was contracting for electricity at future dates at prices much higher than those existing at the time – knowing it could sell it for a still higher price. But that's not all. Enron was also directly involved in artificially increasing the prices. It set up other companies which sold large volumes of electricity to each other, every time at a higher price, before the electricity was finally sold to the utility that distributed it to the consumers.

Of course, there's no reason to assume that Enron was alone in manipulating the energy market, to rip off the people of California. It's only because of the publicity surrounding Enron's collapse that some of the company's machinations have been revealed by politicians and state officials – who pretended they didn't know about this ripoff scheme when it happened.

California's "energy crisis" was finally over by the end of 2001, when wholesale electricity prices had gone back down to $40 per megawatt-hour – 33% higher than before the crisis started. But by then, the state government had already signed contracts funneling tens of billions of dollars into the coffers of Enron and other companies for years to come. That taxpayer money is being taken from services that benefit the population, such as welfare, education and health care.

When the "crisis" broke out in California three years ago, 24 other states had either deregulated electricity or were in the process of doing so. But the public discontent in California put a brake on the rush to deregulation. Several states put their plans on a halt. But now, with publicity around the California crisis and the Enron scandal having died down, companies have dug out the same extortion plot – using the blackout as an excuse to increase rates. And politicians were right there acting as their spokespersons.