[Congressional Record (Bound Edition), Volume 147 (2001), Part 7]
[House]
[Pages 9318-9323]
[From the U.S. Government Publishing Office, www.gpo.gov]



              THE ENERGY CRISIS IN CALIFORNIA AND THE WEST

  The SPEAKER pro tempore (Mr. Grucci). Under the Speaker's announced 
policy of January 3, 2001, the gentleman from California (Mr. Filner) 
is recognized for 60 minutes as the designee of the minority leader.
  Mr. FILNER. Mr. Speaker, we are going to spend the next hour or so 
speaking about the crisis in California and the West, and spreading to 
other parts of this country.
  Apparently, this Congress is going to adjourn tomorrow or the next 
day passing a tax cut for the wealthiest of Americans but refusing, 
refusing to do anything about the electricity crisis in California.
  We just heard how good the President's energy plan was. Yet, out of 
the 105 recommendations made by the President in his energy plan, not 
one, not one addresses the problems of California and the West.
  Those problems are severe. California's economy is teetering on the 
edge. If California's economy goes, so goes the rest of the Nation.
  What is the source of the problem in California and the West, and 
what actions should we take to solve it? That is what we want to spend 
some time tonight in dealing with, and we have colleagues who will 
testify that this issue is not just confined to California but to other 
parts of the West, the Midwest, and the eastern parts of our Nation.
  The roots of this crisis go back to last summer. California passed a 
deregulation law a couple of years ago. It put the path to deregulation 
that our utilities in the State would have to go. San Diego, 
California, which I represent, was the very first by the terms of the 
deregulation act to fully deregulate its wholesale and retail prices.
  I think San Diego was the first place in the Nation, certainly in the 
State of California, to fully deregulate in this way. We found out in 
retrospect that that deregulation law was badly flawed. It allowed 
deregulation of a basic commodity, the oxygen of our economy, when 
there was no market, no competitive market, to allow the reduction of 
rates that were promised by the law. Yet, we went ahead and 
deregulated, and boy, did we find out what a mistake it was.
  When my constituents in San Diego opened their bills last June, they 
were completely shocked to see that their prices had literally doubled. 
Even worse, the next month the prices had gone up another level, 
tripled from the original pre-deregulation rate.
  Now, if one was a senior on a fixed income paying $50 a month and the 
bill went to $150 or $200 without any explanation, without any reason, 
and without any end in sight for the increases, that person was 
panicky, wondering how they can air condition their apartment or heat 
it when necessary.
  If one was a small business and paying $800 a month for electricity 
and the bill went to $1,500 and then to $2,500, even $3,000, how could 
that business stay in business? How could they survive with those 
rates? Scores of my constituents had to close their doors in that first 
just 60 days of deregulation in San Diego.
  Now, San Diegans found out and learned pretty quickly what the reason 
was that this occurred. It was not any hotter a summer in 2000 than it 
was in 1999. Demand did not go up in California or in San Diego. The 
cost of producing a kilowatt of electricity, which is a couple of 
cents, did not increase.
  Yet, their prices tripled in 60 days. It was clear that there was a 
manipulation of the market; that the few companies who controlled 
electricity in California were jacking up the prices, gouging people, 
and taking enormous, enormous profits. Those profits, Mr. Speaker, have 
amounted to $20 billion over the last year in California.
  Now, all the politicians reacted to the panic, to constituents who 
came in and said they were going bankrupt. We looked death in the eye 
literally in San Diego last summer. We said that this price increase, 
these price increases, were caused by manipulation of the market by a 
whole number of means which we became aware of and submitted to the 
Federal Energy Regulatory Commission, FERC.
  FERC investigated what we had supplied them and they reported last 
November that, yes, we were right, the price was manipulated, the 
market was manipulated in San Diego, California, and the prices were 
unjust and unreasonable. That is the term in the law. Therefore, they 
were illegal.
  I believe, Mr. Speaker, that the true crisis in California started 
the day that that report was issued by FERC, when they admitted or they 
revealed that the prices were illegal, yet they did nothing to stop the 
wholesalers and generators who were charging these prices.
  What FERC said by not applying any sanctions to these wholesalers was 
``Go and rob the State blind, because we are not going to do anything 
about it.'' Boy, did they ever.
  My friend, the gentleman from Sherman Oaks, California, the most 
well-named city in America, is here with me. We have representatives 
from Chicago and the Midwest. I hope the gentleman from California (Mr. 
Sherman) will pick up the story of what occurred when they said, ``Go 
rob the State blind'' to the energy wholesalers, and what they did to 
the State of California in the year 2001.

                              {time}  2345

  Mr. SHERMAN. Mr. Speaker, I thank the gentleman from San Diego, 
California (Mr. Filner) whose home county was ground zero for the 
consumer being directly affected by this Statewide and now regionwide 
rip-off.
  In 1999, California paid $7 billion for electricity generation. The 
next year, in the year 2000, we actually used less electricity at peak 
times, but for the same basic amount of electricity we paid $32\1/2\ 
billion. This year we will use the same amount of electricity as we 
used in the prior 2 years, and we will be charged $70 billion, from $7 
billion to $70 billion, no more electrons, just more price. A transfer 
this year, if it continues, of $63 billion from the consumers of 
California to a few megacorporations coincidently based in Texas.
  The entire State said okay, we did not do the right thing with our 
deregulation. We want to reverse it. We want to regulate these same 
plants that used to be owned by our regulated local utilities and have 
been sold off to these big outfits based in Texas, and then we are told 
by the Federal Government, you cannot regulate these same plants that 
you regulated before, Federal law prevents it and we, the Federal 
Government, although the statute tells FERC that they are required, are 
required to insist upon fair and reasonable rates, they have decided to 
go AWOL.
  So the effect is to move $63 billion of wealth from consumers in 
California to megacorporations chiefly in Texas. Now, in order to 
justify or hide this incredible rip-off, what we are told by many of 
our Republican colleagues is that this is not a rip-off. It is a 
morality play. California is immoral and should be punished by a just 
God who should transfer money to their political supporters.
  Keep in mind, first, even if California made some mistakes in its 
environmental policy or its regulatory policies, it is hardly any 
reason for the Federal Government to tie our hands and prevent 
reasonable regulation, but it is also not true. California did not 
prevent the construction of these power plants.
  First of all, in 1999, we were exporters of electricity many months 
during the year, exported it to the Pacific Northwest to other States, 
no one really wanted to build power plants in California. Nobody filed 
a serious application.
  In fact, the private sector was able to buy the existing plants at 
bargain prices. They had no particular interest in building more, but 
let us say they have such an interest and let us say environmentalists 
somehow prevented them from building in California, two great leaps of 
imagination, physicists have informed me that electrons do not know 
when they cross a State border.
  We have one electric grid for the West. You can build a plant in 
Arizona,

[[Page 9319]]

Nevada, Oregon and Washington and save the same market. If you are 
interested in selling electricity in the West, it does not matter which 
side of the State boundary you are.
  They were not building plants in Nevada, and they were not building 
plants in Arizona until a year ago. We had a Republican governor in 
California who in his 8-year term did not grant a single permit, 
because none was seriously requested. Now we have 14 plants under 
construction.
  The City of Los Angeles has no shortage because we have public power. 
We are exporting power from the City of Los Angeles to the other parts 
of the West.
  The reason we have this shortage is because a few megacorporations 
have discovered a new definition for ``closed for maintenance''; that 
is to say, the plant is closed to maintain an outrageous price for each 
kilowatt. That is what is happening.
  Mr. FILNER. Mr. Speaker, I want to continue with the California story 
and what our recommendations are to solving it, but I want our 
colleagues to know that this is not just a California problem. This is 
not just a western problem. This is a national problem. That is why 
only the Federal Government can step in.
  Mr. Speaker, the gentleman from Chicago, Illinois (Mr. Rush) would 
like to tell us what is happening in his home State and home city in 
Chicago.
  Mr. Speaker, I yield to the gentleman from Illinois (Mr. Rush)
  Mr. RUSH. First of all, I want to thank the gentleman from California 
(Mr. Filner) for not only his convening this special order for this 
evening, but for all the outstanding work that he has done on the issue 
of energy prices throughout America.
  I certainly want to thank the gentleman from California (Mr. Filner) 
and the gentleman from California (Mr. Sherman) for their outstanding 
contributions.
  Tonight, I just want to rise to discuss the endless stream of energy 
problems suffered by consumers within the City of Chicago. This is 
indeed not just a California problem. It is not just an Illinois 
problem.
  It is a problem that America faces, but in order to paint a picture 
of what is happening in Illinois, I want to zoom in on Chicago. In the 
summer of 1999, Chicago experienced almost daily electricity blackouts; 
the following summer, the summer of the year 2000, Chicago consumers 
were subject to gasoline prices which soared above national averages.
  Then during the winter of 2000, Chicagoans faced 300 percent to 400 
percent increases in their gas bills over the previous winters.
  As if that stream of emergencies was not enough, today this very day 
while thousands of Chicago residents are digging their way out of the 
winter national gas debts, they have been slammed by yet another 
seasonal energy crisis.
  With an average regional price of $1.80 per gallon of gasoline in the 
Midwest, Chicagoans have been paying up to an astonishing $2.40 per 
gallon for gasoline which represents the most dramatic increases in 
gasoline prices within this entire Nation.
  If we would just consider the following: taking a snapshot of 10 
major metropolitan areas nationwide during the month of April, 
Chicago's spike, and that is indicated by the bar in red, Chicago's 
spike in gasoline prices dwarfs the cities on this chart and all cities 
nationwide, all cities nationwide.
  The chart says that the average gasoline price increase was 12.8 
percent average across the Nation; but in Chicago, it was in excess of 
22 percent. Simply put, these recent and drastic price increases are 
more than my constituents can bear.
  For example, there exists in my district a man who owns a grocery 
store who delivers foods and goods to the people in the neighborhood. 
Because of the recent hikes in gasoline prices, this man, this 
breadwinner for his family, this business owner is forced to factor the 
increased costs of gasoline into his delivery charges. And as a result, 
many of the elderly customers who live on fixed income must bear the 
weight of the current crisis.
  These are people who have no other means of income, except what they 
get from their fixed income checks, their Social Security and other 
types of fixed income checks on a monthly basis.
  Indeed, the effects of extreme gasoline prices does not only affect 
individuals, but entire bodies of local governments. For example, last 
summer, I convened a Chicago delegation hearing on that summer's 
exorbitant gasoline prices. And at the hearing, we heard from a 
gentleman from the district of my colleague from Illinois (Mr. Davis), 
who you will hear from later. We heard from Chief Gregory Moore of the 
Village of Bellwood Police Department in suburban Chicago.
  During the hearing, Mr. Moore testified to the fact that the costs of 
operating police vehicles jeopardized the solvency of the police 
department's budget. That was just one indication of the impact on 
local governments. The list of the local impacts goes on and on and on.
  What adds insult to injury in the current situation is the fact that 
while consumers nationwide struggle with gasoline and other energy 
prices, the big oil and gas companies are realizing greater and greater 
profits.
  For example, in the summer of 1999, the average spread between the 
spot price of crude oil and gasoline was 8 cents per barrel. During the 
following summer, that spread rose to 15 cents per barrel. Shockingly 
during the month of April 2001, we saw that spread hit an all-time high 
of 34 cents per barrel.
  What this dramatic increase means is that despite relative stability 
and refining costs, the profit margin for refiners has skyrocketed. 
This is only one example of how big energy continues to profit while 
consumers continue to pay unreasonable high prices.
  Many industry experts and insiders, including President Bush and Vice 
President Cheney argued that the recent windfalls in big energy profits 
is simply a result of national market reactions to constrained supply 
and energy across the board. But when gasoline companies in the Midwest 
and natural gas companies in the West walk the fine legal line and 
intentionally reduce the output, market forces are not at work, Mr. 
President. When unchecked merchant mania strangles competition in the 
petroleum industry, I would argue that market forces are not at work, 
Mr. President, and Mr. Vice President. When Midwestern petroleum 
refiners maliciously failed to make the investment in refineries in an 
effort to turn the public against locally produced clean burning fuel 
additives, market forces are certainly not at work, Mr. President and 
Mr. Vice President.
  What makes matters worse is that in this feverish desire to pump up 
the free market, the President and the Vice President have forgotten 
about the very people that the market is supposed to benefit, the 
little people. And this fact was made perfectly clear in the nomination 
of Timothy J. Muris to the Federal Trade Commission.

                              {time}  2300

  Mr. Muris is a man who has been excessively critical of the very 
purpose, the mission, the object of that body, the Federal Trade 
Commission, which is singly to investigate unfair and deceptive 
corporate practices. Well, this certainly reminds me of the proverbial 
fox guarding the hen house.
  Clearly, the President's National Energy Policy, which I quote, is 
``designed to help bring together business, government, local 
communities and citizens'', is really designed to bring the big energy 
barons closer to the pockets of our beleaguered citizenry.
  So in response to the administration's energy plans which sets a 
series of long-term goals for ``strengthening the market'', I challenge 
the President to remember that his constituency extends beyond big 
business. I also challenge the President to talk to the needy, the 
informed, the struggling, and the elderly about where our energy prices 
will be in 10 years. I challenge the President to tell the leaders of 
local government, municipalities who are on the verge of budget crisis 
that

[[Page 9320]]

they will have to ride out volatile markets for the next 10 years.
  So in closing, let me say that, as long as energy markets in this 
country remain unpredictable, consumers will be forced to suffer 
unexpected and undue hardship. We in Congress, and those in the White 
House, must find some way to level the playing field so that consumers 
are not forced to pay for the necessity of energy as though it was a 
luxury.
  Unfortunately, the President's vague, uninspired and one-dimensional 
energy plan with its blind faith in the market shows that the 
administration has turned a blind eye to the current needs of the 
American people, to the right-now needs of the American consumer.
  I want to thank again the gentleman from California (Mr. Filner) for 
this opportunity, and I want to commend him again and exalt him and 
lift him up, because he has done such a magnificent job on this issue 
and other issues as we attempt to try to correct an insane, incentive, 
callous energy plan that the White House has come up with.
  Mr. FILNER. Mr. Speaker, I thank the gentleman from Illinois (Mr. 
Rush) for telling us what is going on in Chicago. It sounds like 
Chicagoans have learned the same lesson as San Diegans.
  This is not a crisis of supply and demand. This is not a crisis of 
environmental regulation or overregulation. This is a manipulation of 
the market by incredibly big firms and just a few of them who, whether 
it is gasoline or natural gas or electricity, have earned record, 
record profits from 500 percent to 1,000 percent per quarter higher 
than the previous quarter, while our people on fixed income, our small 
businesses, our big businesses are suffering, and the profits flow at 
the expense of our people.
  Mr. Speaker, the best metaphor I have heard on this issue was from a 
Republican colleague in California who had said what is happening here 
is as if you were scheduled for a life-and-death operation in a 
hospital at 3 p.m., and you were getting prepared for that operation, 
and at 5 to 3:00, the administrator to the hospital comes in and says 
now how much were you willing to pay for that oxygen.''
  This is not a question of lack of supply. This is not a question of 
cost of production. This is a question of control of a basic commodity 
at the very moment that it is needed. If one is not moral and if one is 
interested only in gouging and if one does not care about the people 
involved, one can charge whatever the market will bear.
  We have also learned that the President's policy does nothing to help 
the situation.
  So I thank the gentleman from Illinois (Mr. Rush) for helping us here 
understand the issue. We are learning that the high prices are not the 
result of any market supply and demand curve. We are learning from the 
profit reports how much these multinational corporations are making.
  Now, the issue becomes what are we as a society, what are we as a 
Congress going to do about it. The President has not given us an 
answer. The President has what I call a faith-based energy policy. He 
is praying to the markets. But I say to the President, there is no 
market here. There is no competition. There is withholding of supply. 
There is manipulation of statistics. There is gaming the system, and we 
are suffering.
  Mr. Speaker, I yield to the gentleman from Illinois (Mr. Davis), 
another Member from the Chicago area who is with us to tell us about 
what is going on in the Midwest.
  Mr. DAVIS of Illinois. Mr. Speaker, I want to thank the gentleman 
from California (Mr. Filner) for yielding to me. I am pleased to join 
with him and the gentleman from California (Mr. Sherman), the gentleman 
from Illinois (Mr. Rush), and large numbers of other people throughout 
the country who recognize that America, the world's most powerful 
economic engine, is suffering from a severe energy crisis. That means 
big trouble, big trouble for the American economy, but also big trouble 
for the world economy.
  When the energy supply of an engine suddenly becomes erratic, 
unstable or insufficient, one can expect that the impact will be felt 
and felt soon. Well, the impact of our energy crisis is being felt from 
California to Illinois. America's families and America's small 
businesses all over the country are facing energy shutdowns and back-
breaking prices for gasoline, natural goods, and electricity.
  Suddenly, even middle-class families are facing the choice between 
paying their energy bills or paying their mortgages or car payments. 
Suddenly small businesses are being forced to cut back or, in some 
cases, even close. At the same time when most American corporations are 
reporting reduced earnings, energy companies are reporting record 
profits.
  I remember Shakespeare saying one time that there was something 
rotten here, and I suspect that it is. Americans want to know what is 
going on, who is to blame. They deserve an answer, an honest answer.
  What do we do? We know that California, for instance, has enough 
electrical generation capacity to meet their needs but that, under 
deregulation, power producers have strong incentives not to run plants 
at full capacity or even to shut them down to manipulate prices.
  We know that, despite allegations of the difficulty in getting 
environmental permits to build new plants in California, nine major new 
power projects have been approved in the last 2 years, six of which are 
under construction.
  We know that much of the high cost of gasoline in the Midwest and 
Illinois in particular has been attributed to the cost of additives for 
the summer reformulation of gas. Of course we know that we do not use 
those additives in Chicago. We use ethanol in plentiful and cheap 
supply even as gas prices jolted to well over $2 per gallon and remain 
there at most stations.
  We know that more drilling for oil has been touted as a major fix for 
our energy crisis even though we have enough gasoline for the summer 
driving season. Even though California uses no oil to produce 
electricity and even though the drillers have targeted one of our 
national treasurers for drilling, the Arctic National Wildlife Refuge. 
We know that America, which ruthlessly demands productivity from its 
workers, which justifies the mass layoffs of workers in the name of 
productivity, squanders its energy and powers pollutants, greenhouse 
gases, acids and particulates in the air and water.
  We also know that the administration has proposed reducing spending 
on energy efficiency and renewable energy by 15 percent and appears 
ready to repeal energy efficiency standards implemented in the 106th 
Congress. Those regulations, which would increase the efficiency of new 
washers and air conditioners, can meet 5 percent of our energy needs by 
2020. That translates into about 60 fewer power plants than we would 
otherwise need.
  By the way, these more efficient appliances would also save their 
owners money for the life of the appliance. We know that, according to 
Public Citizen, that nine power companies and a trade association that 
stand to gain most from Federal energy policy decisions affecting 
California contributed more than $4 million to one party alone. Three 
of those companies gave $1.5 million.
  So it has become something of a mantra among those here in Washington 
not to try and solve problems by simply throwing money at them. So I am 
amazed that here we are with a raging fire consuming our Nation with 
the inability of people to get the basic energy that they need. There 
is no real plan coming from our administration.

                              {time}  2310

  I say, and we say, that something must be done and it must be done 
now. And that is why I am pleased to be associated with individuals who 
are willing to act, who understand that inaction is not the way to 
solve problems, who recognize that we cannot stick our heads in the 
sand like an ostrich but who know that the American people are waiting, 
looking, seeking, and expecting that their government will act.
  If deregulation has been the answer, it must have been an answer that 
I

[[Page 9321]]

have not seen, or it must have been an answer that millions of other 
consumers have not seen. And so I think it is time to step in to act, 
and I thank the gentleman from California (Mr. Filner) for acting this 
evening by organizing this opportunity for all of us to discuss this 
tremendous issue, and I yield back to the gentleman.
  Mr. FILNER. I thank the gentleman from Illinois. I, like you, find it 
just inexplicable that we are going to be leaving for our Memorial Day 
recess and this majority refuses to act on this crisis.
  Mr. DAVIS of Illinois. It is incredible, it is unbelievable, and I do 
not know how we can have a good holiday knowing that whatever it is 
that we are about to use just might not work.
  Mr. FILNER. I thank the gentleman, and we appreciate hearing from the 
Midwest.
  Mr. Speaker, my colleague, the gentleman from California (Mr. 
Sherman), and I, are going to try to discuss in the time that we have 
left the short-term and long-term solutions to this problem.
  It is clear that the prices are bleeding us dry in California; my 
colleague from California told us in 2 years from $7 billion to $70 
billion. The short-term answer involves getting down those prices. The 
long-term answer, and we will discuss what the Governor of California 
is doing and what the President of the United States is not doing, is 
to make sure that we diversify our resources of energy, get into 
alternative and renewable sources, and begin the discussion of public 
power, which, as the gentleman knows, Los Angeles is very familiar 
with, and have so avoided our problems in the rest of the State.
  The prices have driven us to near bankruptcy in the State. Our major 
utilities are bankrupt. Sixty-five percent of the small businesses in 
San Diego County face bankruptcy this year. What should we do about 
these prices?
  Mr. SHERMAN. The answer is simple and long in coming. The answer is 
established by Federal law and ignored by a Federal regulatory agency. 
Our law says that the price being charged by wholesale generators, 
those who bought the plants from our local utilities and are operating 
them, chiefly big companies based in Texas, that they should only 
charge fair and reasonable rates. And the Federal Energy Regulatory 
Commission, FERC, is there to make sure that they only charge 
reasonable rates. Well, California has been FERC'd.
  The Federal Energy Regulatory Commission refuses to do its job. So we 
here in Congress need to force them to do their job. Alternatively, it 
would be just as good if we simply allowed California to do the job. It 
really is a multi-state market, but most of the plants that supply 
California are in California. Some might say, well, why can California 
not solve the problem by imposing fair, regulated price on these plants 
located in our State? The power of the Federal Government through 
preemption stands on our neck and watches our pockets being picked.
  Mr. FILNER. It is amazing that an administration which stresses 
States' rights and wants to keep the government off our backs will not 
allow us to do that.
  It costs 2 or 3 cents a kilowatt to produce electricity. We are 
paying in California anywhere from 30 cents to 50 cents to $1. It went 
up to $2 last week. Could go to $5, who knows. The cost of production 
has no relationship to what they are charging us nor to the amount of 
electricity available.
  And the same for natural gas, by the way. Turns out that the El Paso 
Gas Company, which controls the pipeline into California, kept the 
pipeline empty to drive up the prices. So the guys who charge us for 
electricity say, we have to charge you more for electricity, the price 
of natural gas went up. Well, the price of natural gas went up because 
the cartel, which is a subsidiary of the same electric companies that 
are saying they have to pay this, shot up the prices arbitrarily also. 
It is the prices, stupid, to coin a phrase.
  Mr. SHERMAN. We have an adequate supply of pipeline space into 
California. It would be good to have some more. But the supply of 
pipeline capacity to move the natural gas from Texas and Colorado into 
California is just tight enough, not so that there is a shortage, but 
tight enough so that you can create a shortage. And as the gentleman 
pointed out, that is exactly what several of these companies, based in 
Texas, close friends just down the street at 1600 Pennsylvania Avenue, 
that is what these companies have done.
  That is why the cost of moving natural gas from Texas to California 
has gone up by 1,200 percent for the same pipelines. No new pipelines 
have been built. No new investment. Just a 1,200 percent increase in 
the price. And that is why it costs more to move a unit of natural gas 
from Texas to California than the value of the natural gas. So 
Californians are paying for this natural gas, which has gone up 
nationwide; and then we are paying to move the natural gas in an amount 
in excess of the value of that increased price that the rest of the 
country is paying for natural gas. And then that then flows in.
  So these independent electric utilities are in an interesting 
circumstance. If they want to generate electricity, they have to pay 
for the natural gas to generate it. If they operate all out, they will 
produce enough electricity so they will have to sell it for a 
reasonable profit. But if they restrict production, they need less 
natural gas to produce less electricity which they can sell for a lot 
more money. Withholding supply.
  Mr. FILNER. This is the irony of the situation and the answer to our 
critics when we say we need what is called cost-based rates, 
established by the Federal Government, to get these prices under 
control. Cost-based rates means the generator of electricity can get 
the cost of production plus a reasonable profit. That is what it was 
under regulation, and it worked for 100 years. We want to return to 
that.
  Interestingly enough, when there are no caps on the price, there is, 
as the gentleman has described, an incentive to withhold production.
  Mr. SHERMAN. Now, I should point out that that incentive exists only 
when things are close to shortage. There are States that have passed 
similar laws to California, but those are States that have been losing 
population, or at least losing relative population to the rest of the 
country. They are old and established States, the Internet has not 
touched them as much; and so those States have a significant 
oversupply, well over 15 percent oversupply of electric generating 
capacity.
  It is not that this system can never work. It is just if you do it in 
a booming State, and California has been booming for a couple of years, 
you end up with a situation where you are close enough to shortage so 
they can smell the opportunity and get you.
  Mr. FILNER. And they certainly took that opportunity.
  So we need cost-based rates. We have legislation to do it. This 
Congress can take it up today, tomorrow, and pass it and bring some 
relief to people in California.
  The Governor of California is doing everything he can to get out of 
the situation that the gentleman described, out of the tight supply 
situation. We have a dozen power plants online and getting into 
production. He is doing everything he can to encourage conservation 
with rebate programs and tax incentives to do this.

                              {time}  2320

  The governor of California, however, has no authority to regulate the 
wholesale price, only the Federal Government can do so.
  So the Governor is working overtime. The legislature is working 
overtime, but they cannot bring down the prices because it is the 
Federal Government's responsibility. That is where we need to pass the 
legislation.
  Mr. SHERMAN. It is not the 14 plants that have just been approved, 
four or five of them are going to be on-line this summer, many more 
will be on-line by next summer. Californians are working overtime in 
conservation. We are second only to Rhode Island in using less 
electricity per person. When new statistics are available, I am sure we 
will

[[Page 9322]]

be first. Even the President of the United States praised California's 
efforts at conservation. Although, frankly, it was kind of back-handed. 
He was not doing it to praise California, he was doing it to insult 
conservation, on the theory that anything being done in California was 
unworthy of being embraced as national policy.
  We are doing all we can except for this huge blockage, and that is a 
Federal Government that will not let us regulate the price at the 
wholesale level, and will not regulate the price itself and huge 
transfers of wealth to a few big corporations.
  Mr. FILNER. I have heard it said never has so much money been 
transferred from so many people to so few in so short a time. We are 
being killed by the prices. The Federal Government must act or the 
whole economy is threatened. It is these same corporations that control 
this that have prevented real research and development and 
implementation of alternative sources of energy because they cannot 
control those sources. It is decentralized and one that is out of their 
power.
  So through photovoltaic and solar sales and wind power, we can in 
fact have energy sufficiency and independence without relying on these 
corporations; and we have to move in that direction. Yet this President 
not only does not do anything for California in his plan, but in his 
budget cuts research into alternative energy sources and cuts 
conservation programs.
  What is he doing for us. I cannot figure out whether it is a 
political attack, one out of ignorance or just plain, hey, my friends 
in Texas are telling me what to do and I am just going to do it.
  Mr. SHERMAN. I take up that issue about conservation research and 
renewables. The President's budget which then passed the floor of this 
House cut those areas by a third. We are in the middle of an energy 
crisis, but we cut our research on renewables conservation. It is 
absolutely absurd.
  Then the President, realizing that the whole country wants research 
into renewables and conservation, issued this glossy report in which he 
says he is going to provide $2 billion in tax credits for clean coal, 
billions more for those who buy energy-efficient appliances. Billions 
and billions, except for one thing, he cut the money in the budget. So 
which is the law of the land, the budget we pass here? The glossy 
booklet that they put out of the White House press office; it is 
unfortunately, in this case, the law.
  That is why the President needs a blackout because in the light of 
day it becomes apparent what he is advocating on the one hand out of 
the press office, which there is no money in the budget for, there will 
be no money appropriated for, it will never happen; but it will be 
talked about.
  Mr. FILNER. There is a myth that our colleague, the gentleman from 
California, the chairman of the Committee on Ways and Means said 
earlier today in a debate, California inflicted this upon ourself. Our 
environmental wackos overregulated and prevented plants from being 
built, and now we are suffering for it.
  I want to talk about something that is going on in San Diego that 
will put a lie to that. I have a friend in San Diego who was a builder 
of power plants around the country. He is retired. He received 
environmental awards from all over the Nation for his ability to build 
power plants, but in both an architecturally and environmentally 
sensitive fashion.
  He said last summer, I can build you a power plant, follow the 
environmental regulations, and it can be up and running in a fairly 
short amount of time. I can charge you what is called a cost-based rate 
which is roughly a nickel a kilowatt, and I will make money on it. I 
will make a profit, as I have always done. I will make sure that the 
people of San Diego have reasonably priced electricity. I will follow 
the environmental regulations.
  We are in the process of trying to get that implemented. We are 
calling it the San Diego community power project. It puts a lie to this 
argument that California did this to itself because of environmental 
rules. We can respect the environment. We can have reasonably priced 
electricity if we have people like the builder of this plant, who 
understand that they can make money without gouging families and 
businesses in California.
  Mr. SHERMAN. As I was talking about before, the private sector was 
not anxious to build plants in California. A few years ago they bought 
the existing plants at bargain prices, which is proof that there is no 
pent-up demand or desire to build plants. You can serve San Diego or 
Los Angeles with plants built in Nevada or Arizona or Oregon, and 
nobody was anxious to build plants in those States either, either to 
serve Las Vegas, a booming market, or California.
  By the way, the electrons do not know when they pass a State 
boundary. The private sector did not want to build plants in the West. 
Now that we have these huge prices, a few companies are coming in to 
build, thank God.
  If we have a moment, I would like to illustrate why it is that 
economics 101, which we are being fed by the White House office, is 
entirely wrong. If you only take one course in economics, you are told 
if you pay more for electricity, if you let the price go up and up, you 
will get more. Supply meeting demand. Then you have to take the 
advanced courses to learn what happens when somebody has monopoly 
power. If we had a regulated market, you could make the electricity, 
and you are talking about kilowatts, I will talk with megawatts, which 
are a thousand times as large. You make a megawatt for $30, sell it for 
$50, and you have no reason to withhold supply. Every megawatt you 
make, you make $20 on.
  Mr. FILNER. And that is 66 percent profit.
  Mr. SHERMAN. That is a good profit.
  But if you have monopoly power and the White House is there to make 
sure that you do not get regulated, you produce less. Why produce a 
megawatt for $30 and sell it for $50 when by producing half as many, 
you can drive up the price to $500. You will sell fewer megawatts, but 
you will make an enormous profit on each one.
  That is what is happening in California, and it is that simple to 
explain. With monopoly power, with the absence of regulation, with a 
White House that prevents us from proposing that regulation ourself, 
with a White House commission that refuses to follow the law and impose 
that regulation, and with a House Republican leadership that refuses to 
tell the Federal Government to impose that regulation, the way you make 
the obscene profits is you produce a lot less electricity and you sell 
each megawatt for a fortune.
  Mr. FILNER. There is a power plant in my district in southern San 
Diego County, the biggest power plant in my area, and in January during 
a stage-3 emergency that we had, stage-3 alerts, the biggest generator 
of their four at this plant, a 250-megawatt generator, was somehow 
removed from service. This was at a time of a stage 3-alert.
  Mr. SHERMAN. And the other turbines in the same plant were generating 
electricity and selling it for prices 50 and 100 times the rates being 
charged.
  Mr. FILNER. Exactly. Not only were they making profits, I had 
thousands of people at plants in San Diego being sent home because 
their places of employment were blacked out or they had certain 
agreements with the utilities that they had to turn down their power 
during a stage-3 alert.

                              {time}  2330

  So we have the incredible situation of blackouts in San Diego and 
other parts of the State, almost fatal collisions, by the way, at 
intersections as the lights went out, possible health fatalities, 
businesses. I had the biggest business in my district, one of the 
biggest businesses in my district come to me recently and say, they are 
going to have to leave San Diego and California because they cannot 
live with this uncertainty.
  So we have the power. The power is there. By the way, when we asked 
them why they did not produce, a TV station had talked to one of the 
people working there, and they revealed the logs and they said, they 
just turned it off. First they told me, well, we turned it off because 
there was environmental

[[Page 9323]]

problems, restrictions, and we went to the air quality board and they 
said, that is a lie, there is no restrictions. They said there were 
mechanical problems, but the mechanics there said there were none. Then 
they said the system operator in the State did not ask them; it turned 
out that they did.
  So we have this incredible situation.
  Mr. SHERMAN. Mr. Speaker, a stage-3 alert is a desperate situation 
where we are asking everybody to conserve and produce.
  Mr. FILNER. And, the blackouts occurred at a time when our capacity 
for production theoretically is 45,000 megawatts, the demand in the 
wintertime when air-conditioning is not on is about 30,000, so we have 
a 30,000 megawatt demand, we have a 45,000 capacity. Economics 101 says 
there ought to be sufficient supply at a reasonable price. We had 
blackouts, and we had blackouts because of the situation that the 
gentleman described earlier.
  I wonder if the gentleman might share with us also the experience of 
those with public power; that is, there are 3,000 communities around 
this country that have public power. The City of Los Angeles, which the 
gentleman knows very well, produces its own power and distributes it. 
The City of Sacramento I think has its own power supply. Those cities 
and those municipalities, those areas that have public power are not 
under the control, for the most part, of this energy cartel. Does it 
work?
  Mr. SHERMAN. Mr. Speaker, it works just fine. In the City of Los 
Angeles, and I live within the city limits, the prices are the same, no 
blackouts; we have no problems. Our city produces a little bit more 
electricity than it needs and sells it to the gentleman's city and 
others in the west. Occasionally, somebody will say, maybe L.A. is 
charging San Diego too much or too little, and somebody will write a 
story about it on page 6 of the newspaper. But the overwhelming story, 
the headline story is, no story here.
  Mr. Speaker, regulated electricity, that is to say privately owned 
but subject to rate regulation, costs plus profit, worked fine in our 
State and virtually every other State for 80 to 100 years. Something 
even more regulated, that is to say the government actually owning the 
means of production and selling the electricity itself, works fine in 
Sacramento, the City of Los Angeles, the City of Burbank.
  Unregulated power seems to work well in some of the States where 
their economy is not growing at all and their population relative to 
the rest of the country is contracting. But in a State like ours that 
is growing a bit, surrounded by other States that are also experiencing 
growth, an unregulated market is an invitation to be gouged. The 
theorists may not have realized that at the time. It seems apparent 
now. When we try something and it does not work, we should go back to 
what we had before that was working pretty well.
  Mr. Speaker, the Federal Government will not let us. We get lectures 
from the White House, lectures about how, if only we had elected 
Republicans, this would not have happened. But we are having a hard 
time hearing the lecture, because we are bound and gagged by Federal 
law that will not allow us to go back to the same system that worked so 
well for us.
  Mr. FILNER. Mr. Speaker, if I can sum up from my perspective and then 
give the gentleman a similar chance, California is being bled dry by a 
cartel of energy wholesalers. We are being charged at a rate of $3 
billion a month, and the State is purchasing that because the utilities 
are bankrupt. Our first job is to get down those prices. We have 
legislation which virtually all of the Democrats and some Republicans 
from the States of California, Washington, and Oregon are supporting, 
which establishes cost-based rates for electricity in the western 
region. That will bring down the prices and stop the hemorrhaging, 
while the governor is programmed to build new plants and conserve more 
has its effect. We must bring down those prices. This Congress has 
refused to act and is going home for its Memorial Day recess without 
doing that.
  We have to move in addition, for the long range, and it really comes 
back to the same problem, because these cartels will not do the 
research for renewable resources, for sustainable energy. We could in 
California be pretty self-sufficient with photovoltaic cells if we 
brought down the cost and purchased in mass. We have to do more work in 
that. San Diego, as are other regions in the State, are moving toward a 
public power authority so we can have our own plant like the one that I 
described earlier. We can build and have some leverage in the system. 
We do not have to expropriate the San Diego gas and electric 
distribution system. At their rate, they will be very happy to do it. 
But we need some leverage of our own electricity and our own capacity 
so we can take control of our own future from this cartel.
  Whether we looked at gasoline in Chicago or whether we looked at 
electricity in California or natural gas as it flows, as the gentleman 
described, from Texas into California, the economic situation is the 
same. There is no competition, there is no market, there is a 
manipulated and controlled situation by a small group of major 
corporations. We must bring them under control, and we as different 
communities must establish our own sources to get out of their control.
  So I thank the gentleman, and I will give him the last word in the 
few minutes that we have left.
  Mr. SHERMAN. Mr. Speaker, the gentleman is right to bring up the 
natural gas prices.
  As I indicated, the price of moving natural gas went up by 1,200 
percent. That happened right after the Federal Energy Regulatory 
Commission, the same culprit as in the other situation, deregulated the 
pipelines and allowed them to charge, through a loophole, to charge as 
much as they wanted to charge. Imagine your home is burning down. You 
might have one neighbor who, for some reason, does not help you. But 
only the most malevolent of neighbors would seize your hose, watch your 
home burn down, hold on to your hose and lecture you about how it is 
your fault, you should not let the fire break out to begin with.
  California is burning. The Federal Government is holding our hose, 
and we are being hosed by Washington, which will not give us the rate 
regulation that virtually all Californians want, and will not let us do 
it ourselves.
  Mr. FILNER. Mr. Speaker, we call on the President and this Congress 
to act today. I thank the gentleman from California, and I thank our 
colleagues from Illinois.

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                              {time}  2340