Los Angeles, CA
The AFL-CIO Executive Council has previously expressed concerns about state and federal efforts to restructure the electric power industry (February 20, 1997, and February 17, 1999). However, the ongoing California energy crisis, precipitated by A.B. 1890, the state's restructuring initiative, now compels the AFL-CIO to revisit this important issue.
California is embroiled in a major energy crisis caused by a failed electricity deregulation scheme. The crisis is imposing unacceptable conditions and costs on working families, businesses, and communities. Last summer, California wholesale electricity prices began to sky-rocket, sometimes reaching ten times comparable rates from a year earlier. Retail customers in San Diego, which was furthest along in the deregulation process, saw their electricity bills increase by 200 percent. The state's two largest utilities have accumulated $12 billion in debt, bringing them to the brink of bankruptcy. The state has been roiled by power black-outs, and without an extreme power conservation effort, much larger disruptions are anticipated this summer.
High energy costs and unreliable power threaten the future of California's high-tech industrial base, and the crisis is spilling over into other states by driving up electricity costs across the West—triggering shutdowns of mines, sawmills, and aluminum smelters, which have caused significant job loss. State efforts to maintain electricity delivery are draining the state budget surplus at the rate of approximately $40 million a day. This places an additional burden on taxpayers and may limit the expansion of public service programs. If the electric utilities go bankrupt, more jobs will be lost. California employee pensions, as well as workers' 401(K) funds, risk losing millions of dollars which have been invested in utility stocks.
California's crisis is primarily due to inadequate generating capacity, and this shortage is the result of the removal of the regulatory regime that would have been responsible for assuring adequate supplies of power. This underlying problem has been aggravated by the creation of a centralized wholesale power exchange which large, out-of-state power generating companies have learned to game by withholding power to force price surges. Unprecedented increases in deregulated natural gas prices have also contributed to California's energy woes.
Proponents of deregulation claim that California did not deregulate enough or just did it incorrectly. There is little to support this ideologically driven claim. For over 65 years, the North American electric power system has been the safest, most reliable, and the lowest-cost producer of electricity in the world. The California crisis confirms the AFL-CIO's primary concern, that electricity restructuring will destabilize the national power system, undermine supply reliability, and dramatically increase prices. California's experience exemplifies the pitfalls of electricity restructuring and underlines the foolhardiness of trusting this most essential industry to flawed market mechanisms.
The AFL-CIO supports California Governor Gray Davis and the California Legislature as they continue their efforts to find the least painful way to a short- and long-term solution to this very complex problem, created when Governor Davis' predecessor Pete Wilson led the effort to deregulate California's electric power system. It also supports the ongoing efforts of the California Labor Federation to reintroduce a strong governmental role to guarantee an affordable and reliable power supply and to keep the state's utilities solvent. How to distribute the burdens arising from California's failed deregulatory venture remains a difficult, unresolved matter. What is clear is that California needs a new regulatory regime that can ensure affordable and adequate supplies of power. This new regime must also increase public accountability, encourage conservation, and assist dislocated workers.
Consumers and workers, industrial firms and communities all depend on safe, reliable and affordable electricity. They cannot afford the volatility, uncertainties and high prices brought about by electricity deregulation. In light of the California experience, it would be folly for Congress or the Bush Administration to introduce new federal initiatives to similarly facilitate retail electricity restructuring on a nationwide basis.
The AFL-CIO therefore urges federal and state governments to adopt the following principles to ensure a reliable, safe and low-cost supply of electricity for the United States:
- create safeguards and incentives to guarantee adequate generation and transmission capacity at all times, while ensuring that all existing environmental and labor standards are maintained for new power plants;
- enact policies to ensure the stability and integrity of wholesale electricity markets;
- create safeguards to minimize price volatility and prevent manipulation of power supplies to artificially drive-up prices;
- support a policy of fuel diversity which also sustains all current generating options;
- encourage increased investment and incentives to promote energy efficiency, demand-side management and conservation, and enact tough Quality of Service standards;
- enact adequately funded programs to make workers dislocated by electricity restructuring whole;
- expand support and subsidies to ensure that low-income families have sufficient access to affordable electric power.
To this end, the Federation will convene a meeting of affected affiliates to consider the best ways to mount education, legal and legislative campaigns to combat the continuing efforts to deregulate this critical industry.
Finally, the AFL-CIO calls for the Congress to craft a new energy policy for the United States which is geared to the needs of all working families, environmental concerns and the national economy.