Corporatisation and privatisation are the key features of the Greater Johannesburg Council’s iGoli 2003 plan that was introduced two years ago. This new approach entails outsourcing the provision of water and sanitation, waste management and electricity to private companies.
The council claims that this new approach will result in efficient and speedy delivery of services to all ratepayers a claim disputed by civic and trade union organisations such as the South African Municipal Workers’ Union (Samwu).
Samwu argues that corporatisation and, ultimately, privatisation will lead to rates increases and job losses and the poor and the unemployed will have little access to basic services such as water and electricity.
Johannesburg’s precedent has now been followed by the Cape Town council, leading to speculation that it’s only a matter of time until other town councils follow suit. The following extracts, taken from the Canadian Union of Public Employees’ 2001 annual report, give an account of the experience that residents in Canadian, United States and British cities went through following the introduction of the deregulation/privatisation of municipal services.
Canadians ‘live in terror’
Coping with severe arthritis and other health problems, Lindsay lives on $855 a month in provincial disability benefits. After paying her mortgage, she has $355 for the rest of the month. Deregulation has blown all the circuits on her budget.
“I spend a lot of time thinking of ways to not use energy. I used to shower once a day, now I’m down to once a week,” she says. Volunteering in nearby Edmonton gives her a chance to cook outside her home and not worry about the energy bill.
“Everyone’s living in terror. Sure, we’re getting some rebates now, but they’re not forever and they’re certainly not guaranteed to cover the huge increases. They’re a band-aid, but unregulated costs will continue to go up.”
[Canadian] government attempts to offset deregulated energy costs have provided cold comfort. Lindsay called her disability worker to find out what would happen if she couldn’t afford her energy bill.
“My worker said: ‘Wait until you get your cut-off notice, and we’ll see what we can do.’ I was dumbfounded. I’m expected to allow myself to get to the cut-off point and then hope someone will help me. By then it’s too late.”
Lindsay’s first heating bill of the year was double what it was last year. Her subsequent bills are holding even with last year’s but only because she’s cold all the time and rations her energy use.
“There are so many people in the same boat I’m in,” says Lindsay. She’s heard that public places like the library seem more crowded full, she thinks, with people trying to stay warm.
“For those of us living on the thin edge, this has pushed us over the edge. I’ve gone from middle class to poor class to below, if that’s possible. Living here right now is kind of scary,” she says.
Changing the rules
A growing number of governments across North America are handing ownership and control of electrical utilities to the private sector, sparking chaos and crisis. Deregulation changes the rules on who delivers electricity and how it is provided, breaking up publicly owned electricity monopolies and limiting the role public utilities play in electricity generation and delivery. Generation, transmission and retail operations are separated, with numerous corporations operating within each area all under the allegedly watchful eyes of a market regulator or other “independent body”.
Deregulation advocates claim competition will make electricity generation and delivery more efficient, which in turn will lead to lower electricity prices and greater consumer choice. As deregulation experiments crash and burn, some analysts are trying to explain away the problems as simple issues of “supply and demand”. Some are audacious enough to claim deregulation didn’t go far enough and that full deregulation will succeed.
In reality the problems are far more profound, starting with the premise that market forces of supply and demand can be applied to the unique, unstorable and essential resource that is electricity.
Deregulation experiments are driven by an ideology that private trumps public no matter the situation even when it comes to meeting the electricity needs of individuals and corporations. Deregulation proponents know only too well that electricity is a critically important, universally relied-upon energy source creating a huge, profitable and captive market. And they’ll say anything to get in the door.
The much-promised competition often eludes those waiting for the benefits, as a small number of multinationals move in to dominate the market. Any cost savings often exaggerated to begin with are enjoyed by the corporations and their shareholders, not passed along to residential electricity users. To add to the rip-off, deregulation often means a transfer of public wealth to private corporations, as public assets are sold off and electricity prices rise.
In the context of free trade, deregulation can make electricity available to consumers in other countries in addition to people of the producing country, restricting the terms under which electricity is bought, sold and subsidised and creating the potential for supply problems as foreign buyers outbid those who need energy locally. Global trade deals further facilitate the takeover of electricity producers by foreign corporations.
Market rigging in Britain
The first major deregulation and privatisation of electricity occurred in Britain in the early 1990s. By 1994 prices to consumers had increased far faster than in the pre-privatisation period, small individual customers were subsidising large corporate customers and utility profits soared.
Privatisation did eventually bring some cost savings, but these were achieved almost entirely through job losses and the savings were not passed on to consumers. Between 1990 and 1995 110 000 jobs disappeared 42% of the work force in the energy sector. If the savings had gone to reduce prices, utility bills would have dropped between 3,2 and 7,5%. But prices did not fall as fast as costs because most of the savings went to shareholders.
The British experience has also shown a continuing problem with “market rigging”, as the companies abandoned any pretence of a free, competitive market in favour of collusion and price gouging. In a number of cases companies have recruited officials working for the energy regulator as employees.
Electricity companies in Britain have consolidated, tightening their stranglehold on the market. At the same time some are becoming trans-utility corporations, venturing into the gas and water business. Others have been the object of foreign takeovers, mainly by American corporations who until recently were unable to reap the same level of profit at home.
That all changed with California.
California’s ‘colossal failure’
California’s deregulation plan was introduced in 1996 with the promise of a 20% price drop and a stable supply. Price rises of up to 300%, bankruptcies, blackouts and a shortage of generation capacity in a fragmented system were the actual result. Utilities were forced to sell off their power plants, making them dependent on private electricity producers and the whimsy of daily bidding.
While demand for electricity rose by only 3% from 1999 to 2000, the cost of that energy increased by $10-billion. Electricity prices to users were capped at a much lower rate than wholesale prices, leaving utilities facing rising demand at the mercy of their suppliers.
Even with some price restrictions, prices to consumers, both residential and commercial, rose highest in areas such as San Diego, where deregulation is most advanced and electricity bills have doubled.
Cities such as Los Angeles, where utilities and generation capacity remained in public hands, have weathered the worst of the deregulation storm. Los Angeles’s public utility used its revenue to keep rates lower, invest in cleaner electricity generating and distribution facilities and prevent blackouts.
In contrast, an audit of private power corporation California Edison showed that of the $7-billion it collected from electricity users in the past five years, it forwarded $4,8-billion to parent company Edison International, which in turn paid out $1,6-billion in shareholder dividends.
The ensuing unstable supply created havoc in the state and beyond. Rotating blackouts made international headlines, as private energy suppliers and high electricity demand sent prices to levels where even large utilities such as Pacific Gas & Electricity and California Edison could not afford to pay. California was forced to import electricity from other states and Canada, and industries threatened to reduce production or leave the state because of the high prices and instability.
While California’s power problems aren’t over, a state bailout appears to have propped up the corporations, for now. The government will buy up to $10-billion worth of electricity on the utilities’ behalf. However, the bailout law forbids the state from spending that sum in what many argue would be a far more productive way buying transmission, generation and distribution assets.
The collapse of California’s electricity industry has spurred calls for a return to a regulated, publicly owned electricity system. Public utilities commissioner Carl Wood says electricity deregulation in California is “dead”, and California Governor Gray Davis called deregulation “a dangerous and colossal failure” and called for more public control.
The failure of deregulation in California has prompted at least a dozen states to scrap or postpone deregulation plans. Although it is a colossal failure in California, in Canada the provinces of Alberta and Ontario are moving ahead with electricity deregulation while provinces such as Nova Scotia and New Brunswick are toying with the idea.
For a full version of the report see: www.cupe.ca/issues/privatization