Energy Crisis: Who Can Keep California Turned On?

Adrian Moore, Harry Rosenfield debate

The debate: Should the state take over public utilities? The participants: Harvey Rosenfield (yes), president, Foundation for Taxpayer and Consumer Rights in Santa Monica Adrian Moore (no), executive director, Reason Public Policy Institute in Los Angeles

MOORE: In a dozen other states, deregulation of electricity generation has given consumers more choices and control over their electricity, dramatically increased their satisfaction with electricity service and lowered the prices they pay. But in California, state leaders did not really deregulate, and Gov. Davis’ actions have only worsened the problem.

A state takeover of the utilities will deny Californians the benefits of real deregulation and guarantee California electricity costs will rise higher and higher above the national average each year. Even worse, politics will govern decisions about electricity – just look at how lobbyists are determining who faces blackouts.

ROSENFIELD: In fact, the state has already taken over the utilities’ job. We taxpayers have been buying electricity for the utilities since January, when they claimed they could no longer afford to do so.

The problem is deregulation itself: California has handed over control of our energy supply to a cartel of greedy companies whose sole purpose is to maximize their profits. Forget that free market rubbish about “competition” and “choice.” Deregulation is a license to steal that must be revoked if we are to restore a reliable and affordable electricity system. Publicly controlled power will be cheaper, safer and more accountable.

MOORE: That “free market rubbish about ‘competition’ and ‘choice’ ” is what gives us more goods at lower prices than any other nation in the world. Competition and choice mean that you get to decide what you want at the grocery story or the car dealer – not some bureaucracy with its own agenda. Do you think, if the government took over the grocery stores and auto industry, that you would be able to get the foods or car features you want? Real deregulation, with real competition, will make electricity service cheaper and more accountable than any monopoly, public or private.

ROSENFIELD: That’s exactly the kind of empty rhetoric the politicians used in 1996 when they passed deregulation at the behest of the powerful utility and energy lobbies. While the “free market” can work superbly if there is adequate competition and it is policed by enforcement of the antitrust laws, it simply makes no sense for some services (such as police, fire, national defense). That is why, nearly 100 years ago, California chose to treat utility companies as heavily regulated monopolies – and why cities with publicly owned power companies are experiencing none of the blackouts and skyrocketing prices that have befallen the rest of California.

MOORE: Deregulation is about creating competition – something that moving to a state electricity monopoly will not accomplish. Competition works. In the United Kingdom, deregulation spurred massive investments by private utilities that improved service and reliability and pushed down costs. Pennsylvania’s electricity deregulation has seen prices fall by up to 30 percent and skyrocketing customer satisfaction.

In California, city-owned utilities are the most deregulated. Exempt from the provisions of our flawed restructuring, they were not forced to sell their power plants or to give up long-term contracts, but they were able to make huge profits selling power to the rest of the state.

ROSENFIELD: Deregulation is a disaster everywhere. New York has seen 43 percent price increases and faces summer blackouts. Pennsylvanians paid $12 billion in excess charges under deregulation, with more rate hikes coming. Montana Republicans are considering a windfall profits tax against the power generators that have gouged their deregulated market.

We can’t afford to leave our electricity supply in the hands of greedy profiteers. Economists say that a reliable electricity system depends upon a 20 percent electricity surplus. But the for-profit energy companies gain most by keeping supplies tight. They are our OPEC. Publicly controlled power systems, being not for profit, ensure adequate supplies.

MOORE: People have to decide what they want. After a century of gigantic, unresponsive electricity monopolies, deregulation seeks to create a system where consumers have more control and more choices, and are not just cogs in the electricity machine.

Only in California did our leaders completely botch the job. Only in California is it proposed to turn the entire electricity system over to those same leaders, creating one statewide bloated electricity bureaucracy. Does anyone truly think the bureaucracy and lobbyists are going to be more responsive than a competitive market? If so, it would be a historical first.

ROSENFIELD: Californians did not ask for deregulation; it was imposed upon us by energy and utility companies that have prospered from eliminating state oversight and price controls. The 2,000 public power systems in this country ensure that a reliable supply of power is available and sell power at an average of 15 to 20 percent lower than the regulated private utilities. Los Angeles’ Department of Water and Power’s electricity prices are 10 times lower than the current extortionary price under deregulation, and its customers are not threatened with blackouts. That’s why we’re backing a Senate bill that would create a state public power agency to fix this mess.

MOORE: For decades, electricity prices have only gone one direction – up. Now, in those states that implemented true deregulation, prices have actually fallen – in Pennsylvania by up to 30 percent – due to competition, not government mandates. And public power systems’ prices are dropping too, where they face competition.

It’s a nice fantasy that a state-run electricity system will be responsive to the public interest, but history and common sense indicate that it will actually be most responsive to political interests. Meanwhile, states that truly deregulate will see falling electricity prices and happier customers, while California looks on from the sidelines.

ROSENFIELD: Public power is no fantasy. Publicly owned utilities serve nearly 40 million Americans. There are no profits, dividends or multimillion- dollar CEO salaries to add to the price of electricity. Government officials, accountable to voters rather than to shareholders, control utility rates. That’s why residential customers of private companies pay 31 percent more on average than public power customers. Public power companies have no financial incentives to manufacture shortages, so they make sure there is always an adequate, reliable supply of electricity. And they can focus on conservation and renewable energy technologies, which the energy industry ignores.

MOORE: Don’t fall for a false comparison from California’s politically distorted market. From Australia to the UK to Pennsylvania and other states, true deregulation has lowered electricity prices for everyone.

In California, our elected leaders botched deregulation, and now their proposed solution is to turn over the whole operation to them. Virtually every developed nation in the world is privatizing electric utilities. A state-run electricity system would be a folly soon only California and Cuba would share. The end result would be bureaucratic inertia and higher long-term prices, instead of the competition and choice that consumers want and deserve.

ROSENFIELD: California is at a crossroads, and citizens can help determine which way we go. Citizen groups are sponsoring legislation in Sacramento to protect ratepayers against bailouts and higher prices through a windfall- profits tax on the energy companies and a state public power agency. But the big utility and energy companies are fighting us; they want to continue deregulation so that citizens will pay up to 160 percent more for electricity. If they win, we will have to go to the ballot box and fix this mess ourselves. Citizens need to protect themselves and California’s economy. Get involved!

Adrian Moore is Vice President of Reason Foundation

Harvey Rosenfield is president of the Foundation for Taxpayer and Consumer Rights