The Thistle Volume 13, Number 4: June/July, 2001.

High Energy Prices

by Greg Dennis

Californians are bracing themselves for a hell of a summer. In March, the California Public Utilities Commission (PUC) agreed to the utility companies’ pleas for massive rate hikes. Some areas of California will see energy rates rise as high as 35%. The North American Electric Reliability Council says Californians should expect about 15 hours of rolling blackouts a week during the summer. And the Travel Industry Association says Californians could face summer gasoline prices of $3 per gallon.

What‘s going on here?

The Deregulation Bill

In 1996, former Governor Pete Wilson signed the now infamous utility deregulation bill. The bill, which was handcrafted by the utility companies themselves, transformed California’s state-controlled utility scheme into a distributed, privatized system. Toted as a model of capitalist legislation, the bill promised to engender competition amongst utility companies, thereby lowering prices for consumers.

The bill also encouraged utility companies to sell off their power-generation plants to out-of-state private companies. Accordingly, the plants were sold mainly to enormous unregulated corporations. This now placed Californian energy prices subject to the volatile nature of the free market. However, another provision of the bill placed a price cap on the energy rates the utilities could charge consumers—a price cap which was to hold until March 2002. As we know now, this price cap was not to hold.

The results were disastrous. When the out-out-state suppliers witnessed the great demand for their energy, they inflated their prices to exorbitant levels. Consequently, the utilities incurred massive debts, because the price cap prohibited them from passing these charges onto the consumer. In March 2001, one year before the price cap was to be lifted, the PUC approved the steep rate hikes and in April, Pacific Gas & Electric, the largest of Califronia’s utilities, filed for bankruptcy. The high energy costs charged by the out-of-state providers inhibited the remaining utilities from purchasing enough energy to meet demand. As a result, Californians are facing blackouts, brownouts, and most likely the highest energy bills they’ve seen in their lives.

Price Gouging and Profiteering

Taking advantage of the surge in demand, the large energy suppliers engaged in wide-spread price gouging and made out like bandits. In 2000, wholesale energy prices averaged $30 per megawatt. Since then, they’ve skyrocketed to $330 per megawatt in January of this year and $430 per megawatt in February. Although when control of energy—an essential commodity with a very low elasticity of demand—is ceded to a handful of unregulated mega-corporations, criminal price-gouging and unconscionable profiteering should probably be expected.

Not surprisingly, the astronomical prices brought astronomical profits. The year 1999 saw Californians pay $7 billion to these out-of-state suppliers. This figure rose to $27 billion in 2000, and the expected costs this year hit a whopping $60 billion. Last year the top 10 oil companies reached record after-tax profits totaling $56.57 billion. That’s a 104% increase over the 1999 record of $28 billion. Some wholesale suppliers have seen average profits skyrocket as high as 508%. In fact, Exxon-Mobil is now the most profitable company on the planet.

The Real Problem: Corporate Consolidation

Is a shortage of energy to blame in California? Answer: Not really. Only a small part of this problem is actually caused by an actual shortage of energy. The real problem is the small number of energy providers using their huge market share to inflate prices. As Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights, states “There is no energy shortage. There is an energy cartel of companies that is manipulating the supply at any given moment in order to manipulate massive market price increase and get high profits.”

A good temporary solution, therefore, would be to place immediate emergency price caps on wholesale energy. However, such a move would rest on presidential approval and that’s a no-no for Bush, who bears such strong personal and political ties to his Big Energy buddies (see “Bush’s Big Energy Ties”). He claims that price caps will discourage energy suppliers to sell to California, thus exacerbating the shortage. But this argument is flawed. First off, the assumption that suppliers won’t sell at the lower prices is unfounded, especially since we have evidence to the contrary. Recall that it was only a few years back that they were selling at rates of $30 per megawatt compared to February’s $430. Plus, the lower prices will enable the electric utilities to purchase more energy in the first place.

Of course, price caps are only a temporary solution. The systemic problem is the consolidation of big energy corporations. Exxon merged with Mobil in 1999, BP Amoco with Arco and Shevron with Texaco in 2000, and just this year we’ve seen Phillips merge with Tosco, Valero merge with Diamond Shamrock, and Conoco agree to purchase Gulf Canada (see “For Rich Or For Richer”). The top five oil companies alone control 60% of the domestic refineries. As we’ve seen in California, they can then use their market share as leverage to arbitrarily cut production and elevate prices to unreasonable levels, thereby bleeding the public dry. In their report “Western Gasoline Price Investigation,“ the Federal Trade Commission found this same phenomenon to be a factor in the spike in Midwest gasoline prices in the spring of 2000. The bottom line: There are two few competitors for any sort of healthy competition.

Bush on the Supply Side

The Bush/Cheney energy plan does nothing to address the problems stemming from the big energy conglomeration. Moreover, it pays only lip service to important conservation measures and provides little investment into viable renewable energy sources. At the same time, Bush’s fiscal 2002 federal budget proposes a 28% cut from the conservation budget, as well as major cuts in funding of renewable energy sources, including a 48.3% from hydrogen technology, 6.7% from biomass, 48.3% from geothermal research, 14.3% from fuel cell research, and 53.7% from solar research. More disturbingly, it promotes expanded oil and gas exploration into some of our nation’s most sensitive lands, including the Alaskan National Wildlife Refuge, and calls for a revival of that hazardous bane of an energy known as nuclear power.

The energy crunch is, fundamentally, a basic supply and demand problem. That is, energy generators are not supplying enough energy to meet the public’s demand; hence the energy shortages and high energy prices. To address the problem, Bush has decided to pursue a Reaganesque supply-side approach. Chock full of corporate welfare, his energy plan looks to lavish the industry with hordes of taxpayer-funded subsidies towards costly, dangerous, and environmentally unsound energy technologies in hopes of boosting supply. It proposes incentives for fossil fuel and nuclear development and an 813% increase in taxpayer-funded subsidies of so-called “clean coal” technology. An egregious misnomer, “clean coal” is still the most polluting fuel we have. As an added bonus, the oil men plan to rollback healthy and environmental regulations, making it easier for the suppliers to pollute and profiteer at our expense.

Perhaps Wenonah Hauter, director of the Critical Mass Energy and Environmental Program for Public Citizen, best captures the essence of the Bush/Cheny energy plan: “Their energy plan is reckless and will not bring down the cost of energy . . . [It] represents a giant payback to the energy industry which helped elect Bush, and their increased profits are coming straight out of American paychecks.” seems to agree. Just listen to their energy stock advice: “Of course, there will also be a chance to cash in on the renewed boom in oil and gas exploration ... Vice President Cheney’s old firm Halliburton will be a prime beneficiary of the Administration’s energy plan. But Halliburton shares — up 50 percent since April — look expensive at 36 times this year’s earnings.”

In short, the Bush and Cheney’s energy plan is a massive corporate subsidy program that promotes nonrenewable sources of energy, pays back the Big Energy corporations that helped bankroll their campaign, and jeopardizes the welfare of ourselves and our environment.

Please Don’t Nuke Us

Nuclear power is not the answer to the energy crunch. It is both the most costly and most hazardous form of energy around. In 1998, the Organization for Economic Co-operation and Development calculated nuclear energy’s pricetag to be $2079 per kilowatt hour, toppling both coal’s $1200/kWe, and gas’s $500/kWe.

Moreover, nuclear energy poses intractable waste storage problems. Every attempt to dispose of it fails and every storage facility built for it leaks. And considering high-level radioactive waste remains hazardous for over 200,000 years, adopting nuclear energy places quite the burden on our children and grandchildren.

Bush and Cheney have proposed two options for nuclear storage, reprocessing and accelerator transmutation. Reprocessing, a process by which radioactive waste is recycled for reuse in the generator, was banned in 1972 for the serious environmental risks it posed. And transmutation, an untested and experimental technology, carries exorbitant costs which the Department of Energy had estimated at $280 billion.

It is also important to dispel the deceptive claim that nuclear power releases no greenhouse gases. President Bush asserts the deceptive claim that nuclear power operates “without pumping a gram of greenhouse gas into the atmosphere.” True, when the electricity is actually generated from the reactor, no greenhouse gases are emitted. But before the uranium reaches the reactor, it must first be enriched, a process which requires much energy of its own. For enrichment, suppliers rely on fossil fuels, which certainly emit greenhouse gases. In fact, coal-fired plants have been built for the sole purpose of enriching uranium for a nuclear plant. To call it a clean form of energy is at best misleading.

In fact, both the Council for Better Business Bureaus and the FTC have found the Nuclear Energy Institute guilty of deceptive advertising by advertising nuclear power as an energy source free of greenhouse gas emissions. Such a assertion is yet another manifestation of the energy industry’s long-held maxim: Profit Uber Alles.

Furthermore, the nuclear industry’s claim that their new power plants are safer than before doesn’t feel too reassuring. In addition to the meltdown disasters at the Ukraine’s Chernobyl, Pennsylvania’s Three-Mile Island, and Japan’s Tokaimura, the U.S. has experienced at least five partial core-melt accidents. With this knowledge, one might rightfully assume the dangers of nuclear power greatly outweigh the benefits.

Yet despite the serious social, environmental, and financial concerns, Bush and Cheney seem all too eager to forge ahead with nuclear development. The political mechanism at work here is evident: Campaign contributions were the quid, now the energy plan is the quo.

Conservation and Renewable Energy

The Bush/Cheney Plan is an injudicious supply-side approach. Instead of increasing supply, we should be focused on conservation measures to promote energy efficiency and decrease demand. These could include investments in more efficient lighting, hi-tech insulation, mandated increases in fuel efficiency, energy audits, software to shut off computer monitors when not in use, as well as a whole host of other creative strategies. According to the Union of Concerned Scientists, the efficiency measures taken since 1973 currently save Americans $400 billion a year. And the 2000 Interlaboratory Working Group on Energy-Efficient and Clean-Energy Technologies found that implementation of comprehensive conservation policies could reduce demand by 24%. Such measures alone would eliminate the need for more than half of the 1300 new nuclear power plants Bush and Cheney propose.

However, conservation strategies alone won’t address all our energy concerns. Fossil fuel power plants currently plague us with sulfur dioxide, which causes acid rain; nitrogen oxide, which is necessary for ozone smog; carbon dioxide, which is responsible for global warming, and toxic metals like mercury and hydrocarbons. And our reliance on such energy has had consequences: contaminated water, extinction of certain sea life, hazardous oil spills, destruction of crops and other plant life, and even sickness and premature death.

For the long term, we should invest in truly clean and renewable forms of energy, including wind, solar, and biomass technologies. In doing so, we could cut down significantly on the levels of toxic gases and pollutants in our air and our environment. We should turn to wind turbines before oil rigs and solar panels before radioactive waste.

The Future

What’s in store for the future? Increased oil drilling? More fossil fuel dependence? A resurrection of nuclear power? These are steps backward. We need a progressive, forward-looking energy agenda that wholeheartedly embraces conservation and renewable energy sources for the well-being of our environment, our pocketbooks, and ourselves.

Bush’s Big Energy Ties

President George W. Bush

Founded oil production company Arbusto Energy, Inc. in 1977, later renamed Bush Exploration. In 1984, Spectrum 7 bought Bush Exploration, George W. named the president of Spectrum. Harken Energy bought Spectrum 7 in 1986, Bush serves on the board of directors. Received $1,842,056 from the oil and gas industry during this past election.

Vice-President Dick Cheney

In 1995, became chairman and chief executive officer of the Dallas-based Halliburton Company, the world’s largest oil services firm. Since 1992, Halliburton has contributed more than $1.6 million in individual, PAC, and soft money donations to federal candidates.

Energy Sec. Spencer Abraham

As a senator, was active in energy and transportation issues. During his tenure, he became the #1 recipient of campaign contributions from the automotive industry and the #2 recipient of oil and gas money. He once drafted a proposal to eliminate the Department of Energy, the department he now leads.

Commerce Secretary Don Evans

Spent 26 years with Tom Brown Inc., a Denver-based oil and gas company. Rose to the position of chairman and CEO of the $1.2 billion corporation. Serve on the board of directors of the oil and gas company TMBR/Sharp Drilling.

Interior Secretary Gale Norton

As associate solicitor of the Interior Department during the Bush, Sr. administration and as attorney general of Colorado, concentrated on energy and land use issues. As a lawyer, Norton represented Delta Petroleum and defended NL Industries, a manufacturer of titanium dioxide pigments, against lawsuits over children’s exposure to lead paint. Served as national chairwoman of the Coalition of Republican Environmental Advocates, a group which is funded by Ford Motor Company, BP Amoco, and the like.

NSA Condoleezza Rice

Sat on Chevron’s board of directors since 1991. Has a 136,000-ton Chevron oil tanker named after her. Holds 3,014 shares of Chevron stock, valued at $241,000. (Though Chevron claims she has resigned from the board and will sell her stock). In Nigeria, community protests against Chevron’s oil and natural gas exploration in the country’s delta region have been met with harsh reprisals by the Nigerian military. “I’m very proud of my association with Chevron,” Condoleeza claims, “and I think we should be very proud of the job that American oil companies are doing in exploration abroad, in exploration at home, and in making certain that we have a safe energy supply.”


The Thistle Volume 13, Number 4: June/July, 2001.