Get ready for the sequel

Published on

Scripps Howard News Service

If it were not so serious, the debate about California’s electricity crisis would be as entertaining as a Hollywood thriller, thanks to its colorful cast of villains, dupes and victims. In recent days, some of the actors have delivered performances as Oscar-worthy as any recognized during Sunday’s Academy Awards presentation.

The most astounding performance thus far has been that of the independent electricity generators, in response to an order by the Federal Energy Regulatory Commission to justify their extravagant profits or be prepared to refund some of the money to their customers.

The FERC recognized that the producers’ costs have risen, but found the increase in wholesale electricity prices has risen even more. Electricity that cost $30 per megawatt hour last year has been wholesaling recently for $430 per megawatt hour, an increase of more than 1,400 percent. The price of natural gas, which produces a slightly larger share of the state’s electricity than either nuclear reactors or hydropower dams, is “only” about three times what it was a year ago.

In their formal response to the FERC order, the power companies argue that the higher price is justified because of the risk they are taking by selling electricity on credit to utilities that are having trouble paying their bills.

The reason the utilities are nearly bankrupt is that the power suppliers have knowingly charged them more for electricity than they could afford to pay, thanks to the consumer rate freeze imposed by California’s deregulation law. Having looted the utilities of billions of dollars, thereby driving them to the edge of insolvency, the generators now justify the looting by citing the resultant poverty of their victims.

It’s not quite the case of the killer who shoots both parents and then throws himself on the mercy of the court because he’s an orphan, but it’s pretty close. Call it the best performance in a misleading role, and hand each energy company a gilded statue shaped like a screw.

In light of the enormous increase in wholesale electricity prices, even the painful 46 percent consumer rate increase approved this week by the California Public Utilities Commission will do little to stem the utilities’ flow of red ink – not as long as the fundamental supply-demand imbalance grants so much market power to the generators. The rate increase will, however, have two immediate effects. One is unequivocally positive; the other is unpredictable.

The beneficial effect will be to give consumers a tangible reason to conserve. For too long, Americans have been accustomed to believing that energy ought to be cheap and abundant, when in reality it should be expensive to reflect the true nature of its production.

Fossil fuels exist in finite quantities after all, making them precious. Their cost should be even higher to reflect the damage to human health caused by their combustion, as well as the disruptive effects of carbon dioxide emissions on global climate patterns.

Even hydropower, the “clean” energy source that provides nearly a quarter of California’s electricity, ought not to be cheap. Every big dam kills a river, or at least a part of it, and living rivers should not be regarded as a renewable resource or as disposable commodities. If social and environmental costs were factored into the rate structure, hydropower might well be the most expensive source of electricity in use.

Higher rates will encourage consumers to treat energy as the valuable commodity it is, one whose production consumes limited resources and damages air, water and human health. It’s hard to find fault with that.

The unpredictable effect of the rate increase lies in the response from angry activists who’d rather fight than simply conserve.

Four months ago, when the threat of utility bankruptcy prompted the first demands for a rate increase, the Foundation for Taxpayer and Consumer Rights began circulating a draft ballot initiative that would restore regulation to the electricity industry, forbid utility bailouts and impose a windfall profits tax on energy suppliers. It was a club, held over the heads of Gov. Gray Davis and members of the state Legislature.

Expect that club to fall. This summer, when bills are higher than ever and the lights still go out, it shouldn’t be hard to gather petition signatures. “Deregulation II: The Sequel” probably won’t win any Oscars. But it should be interesting to watch.

Consumer Watchdog
Consumer Watchdog
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