William Kucewicz provides much needed
William Kucewicz provides much needed sane analysis of California’s energy crisis:
The important point is, given the above constraints, the 1996 utility restructuring law can hardly be called “deregulation.” Strict regulations continued to abound. Worse, the rules affected two of the power market’s most essential functions — pricing and contracting. California thus got the worst of both worlds: higher-than-necessary power prices and lower-than-needed electricity supplies. It’s no wonder Californians are irate.
Kucewicz also mentions that federal regulators haven’t found the price gouging Gov. Davis and others claim is causing sky-rocketing electricity prices. Investigators found:
In November and December of 2000, the market was driven by extreme cold, high natural has prices and low storage levels, and by low water, precipitation and stream flow levels. These conditions were made worse by an operating environment with a large number of outages and environmental constraints, and the general atmosphere of market uncertainty surrounding the extreme nature of these fundament factors. In this environment, power prices rose to extremely high levels for much of the period, levels above short-term power production costs and, if sustained, above long-term costs as well.
The bureaucratic blocking of new generating plants is also mentioned as a cause of the electricity crisis.
This isn’t to say that power producers didn’t want to construct new generating facilities in the Golden State. The industry asked to build 25 power plants in recent years, capable of producing 15,500 megawatts. This would have increased in-state power generation by more than one-third. It also would have represented more electricity than California currently imports. However, the agency responsible for siting and licensing approvals, the California Energy Commission, had, until recently, okayed only five of the units. In other words, California’s rolling blackouts wouldn’t have occurred had the commission acted in a more timely manner.
For a solution to California’s problem, Kucewicz goes back to Economics 101. There’s more demand for electricity than producers are willing (or financially able) to supply. Since there’s a ceiling on retail prices, prices can’t go up. As a result, California has a power shortage. California needs more electricity, so Kucewicz recommends “jettison[ing] all controls on power prices.” With prices allowed to rise, new suppliers would want to offer Californians electricity. The added supply will eventually force prices down.
Along with removing price controls, new in-state power production must be freed from government hassles. Kucewicz likes the idea of “cookie cutter-style” plants that would meet environmental standards. These could then be quickly build without time-consuming bureaucratic interference.
“California’s Dreaming: California Electric Power Crisis; California Electricity Policy, Power Blackouts”
Cato Institute’s collection of electricity articles
