December 2010, Week 2


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Sun, 12 Dec 2010 22:37:58 -0500
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(1) Death and Profits
(2) Phone Companies' $100 Billion Rip-off

Death and Profits
The Utility Protection Racket
By Michael Parenti
Z Magazine
December 2010

Pacific Gas & Electric (PG&E) is a billion-dollar,
privately-owned, publicly-regulated utility whose main
function is to make enormous profits for its
shareholders at great cost to ratepayers. I know this to
be true; I'm one of the ratepayers. The California
Public Utilities Commission (PUC) permits PG&E to charge
rates that are 30 percent higher than the national

PG&E's shareholders enjoy a guaranteed 11.35 percent
yearly return on equity. That's slightly higher than the
11 percent that Bernard Madoff pretended to offer his
investment victims. After Madoff was exposed, his
victims were chided for not having realized that no one
pulls down an 11 percent return year after year on the
stock market. But PG&E investors take in more than that
every year. Unlike Madoff, the company's earnings are
for real, guaranteed at a fixed return, devoid of risk.

PG&E enjoys a captive consumer market of 15 million
customers in northern and central California. The
utility is a monument to state-supported monopoly
capitalism. If costs rise, then so do customer rates-in
order to guarantee the 11.35 percent return. PG&E
carries a $17 million insurance premium and additional
millions in insurance deductibles; these expenses are
picked up by its rate-payers.

If northern and central California's gas and electric
services were publicly owned, there would be no 11.35
percent skim off the top going to rich investors, no fat
salaries and bonuses and huge severance packages
pocketed by top executives, no billions of dollars in
private wealth to be traded on the stock market.
Customer rates would probably be one-third to one-half
lower than they are today and gas pipelines would be in
better repair.

An Avoidable Catastrophe

Along with all the other expenses they bear, PG&E's
ratepayers usually pay for the enormous costs of utility
accidents. This may still prove to be the case with the
disaster recently in San Bruno. On September 9, 2010, a
PG&E pipeline blew apart. Gas explosions and flames
ripped through the San Bruno community, taking the lives
of at least 8, injuring over 50 others (some very
seriously), and completely destroying or damaging
upwards of 100 homes. An official from the National
Transportation Safety Board described it: "My immediate
assessment was the amazing destruction, the charred
trees, the melted and charred cars, the houses

In the weeks before the catastrophe, residents had been
reporting gas odors and had voiced fears about a leak.
But this brought no action from the company. A state
assemblyperson from the San Bruno area noted that the
torn pipeline was over 60 years old, having been
installed in 1948. He criticized PG&E for its poor
maintenance and lax response. After the explosion, it
took the company almost three hours to shut off the gas

Company officials had known since 2007 that the aged
pipeline serving San Bruno needed to be replaced. As
reported by The Utility Reform Network (TURN), a public
interest group, the PUC had granted PG&E a $5 million
rate increase to replace the pipeline in 2009, but the
company never got around to doing the work. Instead PG&E
overspent its budget on executive bonuses and delayed
the pipeline replacement until 2013.

Then it had the gall to request another $5 million rate
increase to replace the same neglected section of
pipeline. The disastrous September 2010 explosion likely
would have been averted if the utility had dealt with
the pipeline in 2009 as originally slated.

PG&E has a history of dangerous mishaps:

    * improper piping allowed gas to leak from a
    mechanical coupling in 2006

    * a leak and explosion in Rancho Cordova killed one
    resident and injured two others in 2008

    * over 40 other gas pipeline accidents in the past

One wonders how many other California communities are at
risk from aging and deficient pipelines. So much for the
superior performance of a giant private-profit

This problem obtains not only in California. Throughout
the United States people are at risk from improperly
maintained gas lines belonging to private utilities that
go largely unsupervised and unpunished. Average fines
are less than $30,000 and not easily collected.

PG&E's CEO, Peter Darbee, formerly of Goldman Sachs (how
perfect), reassured the public that he was "focused on
the tragedy" in San Bruno and on "how best to respond to
the authorities involved." Darbee failed to mention that
PG&E is not in the safety business. Like so many big
corporations, it does what it can to cut corners on
maintenance. The lower the maintenance costs, the higher
the profits. The corroding pipelines fit well into the
picture, like the corroding infrastructure of the entire
society. Safety is not a prime concern for giant
corporations, if any concern at all, because safety does
not bring in any money. In fact, it costs money.

Like any other multibillion-dollar firm, PG&E is
foremost in the business of making the highest possible
payoffs for its shareholders and its executives. The
system works just fine for those whose real job is to
skim the cream, those who do not have to pay the costs.
That is the alpha and omega of modern corporate

Capitalism at Work

Lives were lost in San Bruno; homes were totally
obliterated. Darbee and his cohorts should be facing
jail sentences instead of golden parachutes. Even the
Contra Costa Times (9/27/10)-no radical broadsheet-urged
the PUC "not to allow PG&E to raise rates to cover the
expense of the San Bruno explosion or the cost of doing
more and better pipe inspections. These costs should be
borne by PG&E managers, employees, and investors."
Certainly managers and investors.

Left out of the picture is how corporate malfeasance and
corporate-generated disasters are a reflection of the
capitalist system. If a gas pipeline had exploded in
communist Cuba, killing people and destroying homes, the
incident would immediately have been treated by U.S.
commentators as evidence of the deficiencies of the
broader economic system, as proof that socialism cannot
do it right.

But disasters in our society are seen simply as
immediate mishaps, at worst, instances of negligence and
mismanagement by a particular company, never as the
outcome of a broader capitalist system that steadfastly
puts profits before people, with immense costs passed
along to the public.

The same is true of mining accidents, train wrecks,
plane crashes, unsafe auto vehicles, unsafe consumer
products and foods, toxic spills, offshore-drilling
calamities, and a host of other noxious things that
corporate America foists on us. Private industries are
not in the safety business. All of them are in the
business of creating the largest possible profits for
their shareholders and their executives.

Pressed on the matter, they might admit as much. Steel
magnate David Roderick once said that his company "is
not in the business of making steel. We're in the
business of making profits." The social uses of the
product and its effects upon human well-being and the
natural environment win consideration in capitalist
production, if at all, only to the extent that they do
not violate the profit goals of the corporation.

Better Things To Do

Rather than spend money on replacing aging pipelines,
PG&E-just three months before the San Bruno catastrophe-
poured $46 million of ratepayer money (ten times the
amount needed for repairing the San Bruno pipeline) into
the electoral campaign for Proposition 16. This
initiative was designed to make it nearly impossible for
local governments to purchase energy from alternative
sources, impossible to get out from under PG&E's
monopoly grip. The proposition was miraculously defeated
despite the company's immense campaign outlay.

With thousands of miles of aging pipes to inspect and
perhaps replace, PG&E continues to find other things to
do. Through most of 2010, it was busy putting "smart
meters" into people's homes. The new meters do not need
to be read by an employee out in the field. Instead data
from residences and businesses are transmitted by a mesh
network of radio signals.

Critics argue that the smart meters are too smart. They
often inflate electric bills. Worse still, they may be
harmful to our health. There is evidence that radio-
frequency exposure is linked to cancer and other
diseases. A number of ratepayers already complain of
being sickened by the heavy doses from smart meters.
PG&E gives reassurances that the frequencies pose no
great danger, but continues to face community resistance
and skepticism from independent investigators.

Smart meters cut labor costs. Lower labor costs do not
bring lower rates for ratepayers, but higher profits for
managers and stockholders. Never accuse PG&E of neglect
or stupidity. The company knows what it is doing. In
keeping with the essence of the corporate capitalist
system, PG&E exists not to serve the public, but to
serve itself.


Phone Companies' $100 Billion Rip-off -- Where Is 
That Hidden $6 a Month Going in Our Phone Bills?

The phone companies are soaking all of us for a good
chunk of money every month, and they're allowed to 
conceal it in the fine print of your monthly bill.

By David Rosen and Bruce Kushnick
December 11, 2010

Next time you open your phone bill, check out the
numerous anonymous charges listed on it.  In particular,
note the one identified as the "FCC Line Charge" or the
"Federal Subscriber Line Charge" (SLC).  Ask yourself
two questions:  What is it for and why am I paying it?

If you look at your bill, you'll likely have a hard time
finding the SLC.  Each state's phone billing method is
different and the SLC is often hidden in what is labeled
the "taxes and surcharges" section or the "monthly
service" section -- or completely missing but added to
the bill.

[An example of an SLC can be found at

The SLC is a monthly fee imposed on every residential
and business wireline phone customer.  The FCC permits
telephone companies to charge subscribers a fee which
was originally intended to help them recoup part of the
cost of having phone lines connect from the customer's
home and office to a long distance service provider. It
is currently capped at $6.50 a month for residential and
businesses; multi-line businesses fees are up to $9.20
per month.

At the end of 2010, the U.S. will have an estimated 160
million business and residential telephone lines.  Since
2000, it is estimated that the phone companies have
pocketed about $100 billion or an estimated $750.00 per
line through the SLC and have done little to benefit the

Few known that, no matter what it is called, the SLC is
not a tax, it is not a surcharge, it is not part of
local service and - whatever it name implies -- it does
not go to fund the FCC or any government.  It is a
direct subsidy to your telephone or wireline
telecommunications provider; and, adding insult to
injury, your pay taxes on this charge.

The SLC was originally created nearly three decades ago
through a massive campaign called "CALLS," i.e., the
Coalition for Affordable Local and Long Distance
Service.  CALLS is the model for what is known in the
telecommunications world as "regulatory capture," the
process by which the phone companies, astroturf shills
and co-opted consumer groups have, in effect, taken
control of the FCC and state Public Utilities
Commissions (PUCs).  [The CALLS regulatory capture is
the subject of an upcoming article.]

* * * 

The FCC first imposed line charges on telephone
customers in 1984 in the wake of the breakup of AT&T.
Then, AT&T was the largest company in the country
serving as a regulated monopoly over 80 percent of U.S.
telephone households, controlling 22 local phone
companies as well as long distance service.  Faced with
an antitrust challenge from a tiny upstart, MCI, and
others, AT&T, through a civil suit settlement, was
broken into seven regional phone companies, the "Baby
Bells"; AT&T and MCI would be long distance phone

The SLC is part of a group "Access Fees" that the long
distance telephone company pays the local telephone
company for the use of or "access" to the parts of the
local network necessary to complete a long distance
call.  They were originally designed to subsidize long
distance costs of the local networks and it was passed
through to the customer as an add-on to their monthly
phone bill. The initial charge, imposed in 1985, was
$1.00 per month; by 1992, it had increased to $3.50 per
month; in 2000, it was again raised and capped at capped
at $6.50 in 2004.

Access charges were fixed at a rate of return of 11.25
percent. However, based on company-supplied information,
in 2007, AT&T, Verizon, Qwest and the other phone
companies had profit margins more than three times great
or 37.5 percent.

Adding insult to injury, New York wireline customers,
for example, pay over 30 percent for an assortment of
taxes, including the Universal Service Fund set at 15.2

As phone bill fees have steadily gone up, the cost of
offering service has dropped - and, over the last two
decades, the telecom companies have become enormously
profitable.  First, they cut employees-per-line costs by
an estimated 65 percent and, over most of the last
decade, they cut new construction costs by half.
Second, since 1991, the original phone networks that
were given to the Bell companies have been written-off
and these companies continue to write-off more new
construction than they replace.

The telecom's profitability is not simply an example of
gouging the customer, but has social consequence: it is
harming the economy. Excess profits are one of the
reasons that the U.S.'s high-speed broadband and
wireless services are inferior to that of the other
developed countries.

* * * 

The FCC adopted the SLC fee through the CALLS process, a
very dubious procedure.  At the time, former FCC
commissioner Harold Furchtgott-Roth raised serious
questions about the proceedings under which the charges
were accepted.  As he wrote in his dissent:

      In the early part of [2000], [the FCC] held a
      series of meetings with a select group of some -
      but by no means all - of the parties with
      interests in this proceeding. And a number of
      parties with interests in the outcome of this
      proceeding, including the Ad Hoc
      Telecommunications Users Committee, Time Warner
      Telecom, and the Association for Local
      Telecommunications Services,  (ALTS, the
      competitive carrier association) were not allowed
      to participate.

      [I]t is undeniable that the [SLC] proposal was a
      product of the negotiations that took place
      between the Commission and those parties that were
      allowed to participate in the negotiations - that
      is, members of the Coalition and some groups that
      purport to represent the interests of residential
      and small-business consumers.

Commissioner Furchtgott-Roth's suspicions only get
darker when assessed against the FCC's assurance that it
would initiate and complete before July 1, 2002, a cost
review to ensure that consumers were not overpaying for
their telecom services.  In 2002, FCC Commissioner
Michael Copps identified the inherent problems
associated with the SLC:

      I am troubled that consumers will face an increase
      in the line charge of their local bill without the
      Commission undertaking a thorough analysis of
      forward-looking cost data.    The Commission [has]
      failed to conduct its own independent analysis of
      the cost data. By failing to undertake the
      thorough analysis of cost data that was promised
      in the access reform order, we are neglecting our
      obligation to consumers.

Now, a decade later, the FCC has yet to conduct a cost
review and the telecom companies have continued to
pocket billions of dollars. Rumors are circulating that,
under the FCC's new National Broadband Plan, the SLC fee
will rise to $10.00 a month.

Next time you open your phone bill, check out the list
of taxes and surcharges you pay every month.  Ask
yourself two questions: What are these charges for and
why do I continue to pay them?  If you feel ripped-off,
focus your anger at the telecom companies, the
regulators and the paid shills who promote corporate
interest as the public good.

In a time of economic crisis, consumer interests should
take priority over those of unearned corporate profits.
And to meet the public good, telecommunications
companies should once again become public utilities.

[Note: New Networks and Teletruth have filed multiple
complaints pertaining to truth-in-billing violations of
the FCC Line Charge:



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