by John M. Curtis
(310) 204-8700

Copyright December 18, 2000
All Rights Reserved.

unning amok, California’s new breed of electricity power brokers are looking a lot like OPEC, driving up prices, causing artificial shortages, and threatening California’s growing economy. "The federal government doesn’t make money, it just takes it . . . from the people," said then Gov. Ronald Reagan in 1980, bashing the government for its incompetent management of the nation’s energy crisis. Blaming the federal bureaucracy, Reagan remarked, "The Department of Energy has a multibillion dollar budget and hasn’t produced an ounce of oil or a lump of coal . . . or anything else in the way of energy," touting free enterprise as America’s savior for the energy crisis. Free market fantasies and fed-bashing has its place, but can’t replace common sense and responsible legislation. While regulating electricity isn’t rocket science, leaving markets unattended spells unbridled greed and runaway prices. Without protective intervention, the electricity industry follows financial markets into disorder and chaos.

       Just ask Fed Chairman Alan Greenspan about his views on laissez-faire economics, who’s well known for some pretty fancy tinkering. Coming to roost, former Gov. Peter Wilson experimented with California’s electric industry in 1996, deregulating tightly controlled utilities and opening markets to fierce competition. But the promises of greater competition, lowered prices, and abundant supplies weren’t redeemed. Free markets produced a bloated energy bureaucracy filled with jobbers, middlemen and brokers driving prices through the roof and supplies into scarcity. Like any commodity, supply and demand determines ultimate value. With demand exploding, power brokers are now holding California hostage, inflating prices and controlling the market. Like most industries, manipulation and price fixing usually backfires. Unlike the drug industry, energy consumers can’t afford artificially inflated prices. Today’s unruly industry of power brokers is now a real threat to California’s status quo.

       Requiring major utilities to sell off their natural gas and petroleum electricity- generating plants, deregulation fulfilled the promise of getting the government off the back of the electric industry. Opening up the markets, deregulation was supposed to—at least in theory—fuel competition and lower prices. Four years later, with prices skyrocketing and supplies dwindling, deregulation has left the industry in chaos and consumers in the dark. Clearly, something’s gone wrong—very wrong. Instead of reducing prices, deregulation spawned a new cartel of energy suppliers with wild speculation pushing electricity prices to unprecedented levels. Like the booming real estate market, frenzied buying and competitive bidding propelled prices from a reasonable $30 last December, to an inflated $150 in June, to an astronomical $1500 per megawatt hour now, sending markets into chaos. Responding to California’s energy crisis, the Federal Energy Regulatory Commission [FERC] permitted utility companies to bypass the market and keep a measly 25,000 megawatts for their own use.

       Since the state’s three major utilities—Southern California Edison, Pacific Gas & Electric, and San Diego Gas & Electric—sold off their natural gas and petroleum-based generating plants, they can’t produce enough energy on their own. Permitting utilities to buy directly from generators and bypass greedy brokers doesn’t go far enough. Showing his ire, Gov. Gray Davis accused the commissioners of ruling "to ensure unconscionable profits for pirate generators and power brokers who are gouging consumers and businesses." Echoing those views, U.S. Sen. Dianne Feinstein (D-Calif.) said the commission’s order was "too timid, too weak, too uninspired to do what is necessary in this crisis." Forced to buy energy at inflated prices and restricted by the Public Utility Commission to maintain their rates, California’s major utility companies are no longer hitting their profit margins. Whether they’re no longer viable, as the major utilities claim, is anyone’s guess. Infatuated with free-market capitalism, some zealots haven’t yet returned to planet earth. Even purists at the Federal Reserve know that it’s perfectly OK to tweak 'free markets.'

       With markets out of control and Southern California Edison and Pacific Gas & Electric amassing 8 billion dollars in added debt, half-measures won’t get the job done. "In my view, competition has not failed in principle . . . because it was never well-conceived or fully tried," said Federal Energy Regulatory Commission Chairman James Hoecker, showing his denial and diminished savvy about how to control wild electricity markets. Taking a lesson from Greenspan, Hoecker shouldn’t be ashamed to do whatever it takes to corral the wild horses. Recognizing California’s failed experiment, Hoecker acknowledged that it "was a disaster in its application—no question about it," but failed to admit that his anemic leadership added to the current crisis. Giving utilities the green light to bypass power brokers and begin using their own energy is a step in the right direction. Placing price controls on energy generators also helps but doesn’t go far enough. Putting a $150 ceiling on the price per magawatt hour only postpones the day of reckoning by a short time. The current electricity market feeding frenzy won’t stop anytime soon without tight external controls.

       Unable to offer any real help, the Federal Energy Regulatory Agency openly invited California to take the reins, reestablishing a workable scheme for regulating the electricity industry. "He [Gov. Gray Davis] can no longer hope for a federal way out of this problem. He has to immediately begin to configure a way out of this legislative mess," said Doug Heller, consumer advocate with the Foundation for Taxpayer and Consumer Rights. Just as the state offered no restraints on HMOs and watched the medical profession go down the tubes, they can’t allow the energy industry to go down the same path. Like HMOs, electricity power brokers shouldn’t be licensed to strangle businesses, gouge consumers, and torpedo the state’s economy. While cries from major utilities may be a bit exaggerated, the fact remains that energy prices have gone through the roof. More empty talk about the virtues of ‘free markets’ won’t charm California’s new OPEC out of changing its ways.

About the Author

John M. Curtis is editor of OnlineColumnist.com. He’s also the director of a West Los Angeles think tank specializing in human behavior, health care and political research and media consultation. He’s a seminar trainer, columnist and author of Dodging The Bullet and Operation Charisma.

©1999-2000 Discobolos Consulting Services, Inc.
(310) 204-8300
All Rights Reserved.