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The power of profit switches lights off in the US

This article is over 18 years, 4 months old
Fifty million people were affected by power cuts in North America last week. What was the cause?
Issue 1865

MILLIONS OF people across the US last week glimpsed a small part of what their government and military have inflicted on people in Baghdad. From New York to Detroit and Cleveland, and across the border to Toronto and Ottawa in Canada, the lights went out and the power died.

It was the biggest electrical power failure ever, affecting 50 million people in all. Transport systems, workplaces, TV, lights and much else taken for granted in modern industrial society suddenly ceased to function. For days afterwards, even as the power came back, no one knew what the precise trigger of the failure was.

What is clear is that its roots lay in the logic of the market which we are constantly told is the only way to run every aspect of society. No one who knew about the US electricity system was surprised at what happened. ‘For energy industry experts the failure was anything but unexpected,’ the Financial Times business paper said.

‘Since the end of the past decade, academics, executives and regulators have been issuing increasingly shrill warnings that investment in transmission lines had not been keeping pace with the growth in demand. ‘The North American Electric Reliability Council, which monitors the transmission grid, warned two months ago that the system required billions of dollars of investment to be brought up to scratch.’ That lack of investment means ageing equipment.

It means transmission lines with restricted capacity to carry electricity, so even when power is available in some areas it cannot be transmitted to where it is needed.

The clapped-out network simply couldn’t cope when faced with a series of problems last week, and crashed completely. None of this was supposed to happen.

After the east coast of the US suffered previous major power cuts in 1965 and 1977 politicians promised action. But in the 1980s and 1990s US politicians and their big business friends decided to unleash the untramelled forces of profit-chasing and the market on the US electricity industry.

The result has been savage competition between rival suppliers. The BBC last week reported, accurately, that in the US, ‘Electricity firms have not been investing in building new lines. That has meant many of the electricity lines are running very close to their limits. Several high voltage transmission lines are already regularly jammed up, especially in the New York area. The government used to take responsibility for ensuring that each area had enough spare capacity to act as a safeguard in times of difficulty. But since the deregulation of the industry in the 1980s the rules have been much less strict. The increased competition amongst power suppliers has cut profit margins, making the firms reluctant to make new investments.’

Investment in the US electricity grid over the last decade has only added up to the same amount as has been invested in the British grid-which is some 15 times smaller! All the firms focused on simply squeezing the maximum profit for the minimum investment, and boosting share prices and fat cat payouts in the process. None gave a damn for the overall state of the system.

Some of the electricity trading firms went into wild speculative gambles. Power trading company Enron, with a little help from its friends like George W Bush, became the world’s biggest company-until its systematic lying turned it into the world’s biggest bankruptcy.

Enron was at the centre of the market-driven frenzy in electricity prices which plunged California into blackouts two years ago. After that there were calls for investment in the electricity system across the US, but Bush opposed that and it never happened.

The Enron collapse also slashed share prices in other electricity and power companies across the US, and then wider recession in the economy did the same. That saw the companies cut back even further on any long term investments, only caring about maintaining maximum current profits.

That set up the conditions for a catastrophic collapse of exactly the kind that happened last week.

It could happen here

AT THE centre of the US power crisis is the company which runs most of Britain’s electricity, and gas, grids. National Grid took over the grid when Margaret Thatcher’s Tory government’s pioneered privatisation and deregulation of the electricity industry. US politicians hailed Thatcher when they then applied the same market medicine to the electricity system there.

National Grid has grown to be a giant global energy company. It took over the Transco gas company and with it the British gas grid. It owns the biggest part of the electricity distribution network in the New York and New England region at the centre of last week’s power collapse.

National Grid Transco made £2.2 billion profit last year. When it took over the New York state based Niagra Mohawk grid company in 2000 it pledged to slash $90 million from ‘cost’.

It cut electricity rates for corporate customers, and pushed rates up for residential and small business customers. That boosted profits, but did nothing to boost investment in the ageing network. These people are in charge of keeping the power running in your home.

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