Consumer Watchdog – Energy "Crisis" Was A $71 Billion Hoax, And It's Not Over, Report Says

New Study Assesses Causes, Costs of California Energy Crisis

Click here to download the report in PDF format.

Santa Monica, CA. --The Foundation for Taxpayer and Consumer Rights (FTCR) issued the first comprehensive review of the California energy crisis today, exactly one year after the first rolling blackouts hit California. Using government and industry data, the 58 page report, entitled "Hoax: How Deregulation Let the Power Industry Steal $71 Billion From California," shows that the California electricity system did not fail according to the laws of supply and demand, as it has been widely portrayed. The California energy crisis, instead, was a hoax -- orchestrated by a power industry freed from price regulation -- that will cost $2,200 for every Californian.

For nearly a year, the energy industry, state officials and President Bush claimed there was a shortage of energy in California. But the crisis suddenly disappeared late last spring after Governor Gray Davis committed the state to spending at least $43 billion for energy over the next twenty years. The report shows that the power industry manufactured blackouts and threatened more of them as tools to gain unprecedented profits and overpriced, long-term contracts during the crisis. The report also warns that unless the state of California regains control of its electricity supply, and makes it publicly accountable, additional artificially-created crises will occur in the immediate future.

"The energy crisis was a hoax, set up by deregulation, to suck billions of dollars out of the state," said Harvey Rosenfield and Doug Heller of FTCR, a non-profit, non-partisan research and advocacy group based in California. "The utilities, energy companies and power traders backed deregulation because they knew it would be a license to steal. Once freed of state scrutiny -- once the cop was off the beat -- they held the state hostage until we agreed to pay their demands. When they stole as much as they thought they could get away with, the 'crisis' mysteriously disappeared -- leaving the people of California stuck with the tab."

"It wasn't a shortage, it was a shakedown," FTCR said.

Among its findings, the report shows that:

• The rolling blackouts, which occurred on generally low-demand days, were not caused by a shortage of power plants, but by energy companies looking to maximize their prices and profits.
• Throughout late 2000 and 2001, when prices skyrocketed, California used less electricity than prior years, in which prices were stable and there were no blackouts.
• Californians overpaid $8.5 billion for electricity between January and October of 2001 alone -- and will overpay at least another $20.5 billion over the next decade.
• While the U.S. entered a recession during the first half of 2001, power companies, such as Enron, Duke and Reliant, reaped unprecedented windfalls.

The crisis suddenly ended -- without the predicted summer blackouts -- not because of Californians' conservation, mild weather or new power plants, but because the energy industry had achieved its goals, and was facing investigations and legislation that threatened to "kill the goose that laid the golden egg": deregulation.

More Crises Unless Deregulation Ended

The report concludes with a series of policy prescriptions including the development of a long-range plan for a hybrid energy system that is part private and part publicly-owned power, and well regulated. The study also calls for regulatory and statutory changes that will save consumers billions of dollars, such as a retroactive ban on "direct access," a re-allocation of the electricity rate structure and the formation of a Consumer Utility Board.

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