California Scheming

Don't blame deregulation for the Golden State's electricity snafus

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Leftists such as Scheer point out that the public utilities in California—Los Angeles, Sacramento, and Pasadena provide examples—charge customers less for electricity. He's right, but they are only able to do so because they don’t pay any taxes, get federal subsidies in the form of tax-exempt debt, and are eligible for sweetheart power deals on cheap federal hydropower from the Northwest (whose full cost is foisted onto taxpayers in other parts of the country). Scheer and others decry private-sector profiteering, as if the public utilities are not among those taking home profits. For instance, Los Angeles’ municipal utility has so far raked in nearly $200 million by reselling the power they buy from the feds on the cheap. The Bonneville Power Administration, the leading killer of salmon outside of California’s sushi industry, earned $208 million last year selling power to Californians, a 500 percent increase over the previous year.

So the California electricity mess is really a reflection of trying to rig markets, not deregulate them. What’s the way out of this mess? All policy pieces are supposed to supply an easy answer, but I’m afraid there’s no painless one available. A socialized power scheme would merely replace private managers with bureaucrats and, in one form or another, pass the cost along to taxpayers, who are also rate payers. At least one new power plant is expected to come online this summer, which, along with the coming recession, may help things a bit by changing the supply-demand equation. Many other plants are somewhere in the tortuous design-approval-construction process and will doubtless get a boost from the current turmoil. California could also beg for some sort of federal bailout, but Washington, D.C. is now dominated by Republicans, who are unlikely to be overly charitable to a bunch of West Coast Democrats.

Not that the feds aren’t already playing a role. Moore points to an unlikely hero in this fiasco, the Federal Energy Regulatory Commission. Not only did the federal bureaucrats rebuff Davis’ pleadings for more regulation, they actually ordered something like the start of a true deregulation of California’s market, freeing up the Power Exchange’s prices and allowing utilities and electricity producers to enter into bilateral contracts. A Bush Department of Energy could further help Californians by ordering the federally subsidized power producers, like the Bonneville Power Administration, to sell their cheap power to all utilities, not just the ones owned by governments.

Politically, leftists like Scheer are using the issue to smear deregulation and free markets, which have, after all, produced all sorts of awful things like life-saving pharmaceuticals, $300 coast-to-coast airplane flights, and long-distance phone calls for $.07 a minute. In Pennsylvania, this horrible market even gives folks relatively cheap power. Still, many politicians, who fear problems more than they long for innovation, are sure to blame the "market" and oppose actual deregulation.

There is a possible political benefit, however. People like my folks down in San Diego know in their bones that the politicians screwed them, no matter what folks like Scheer write. And even granola-obsessed residents of California are likely to recognize that inexpensive electricity has to be produced someplace. And since, as one writer has noted, transporting electricity is like carrying sand in a burlap bag, some of those power plants need to be located in their precious state, if not in their very own backyards.

So unless Californians want to pay and pay and pay -- whether through their rigged "free market" or through higher taxes for publicly owned utilities -- they ought to be more critical of the claims and motives of environmental and consumer groups who work to block the construction of new power plants. Such a dose of reality for Golden State residents won't be all bad. Indeed, it might even keep those golf carts humming.

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