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California
Awakes To Deregulation Nightmare New Zealand politicians slavishly follow foreign ideas on economics, they would do well to inform themselves of other political and economic trends, not theory, but the practice of pragmatism that has guided the USA for 150 years. California Governor Gray Davis on Monday pronounced California's experiment in electricity deregulation "a colossal and dangerous failure" and proposed a wide ranging plan to repair the system, including a variety of state controls over power plant operators and utilities, stepped up conservation efforts and a call for new state authority to buy and build new plants to generate power. "The time has come to take control of our own energy destiny," the governor said. "California's deregulation scheme is a colossal and dangerous failure. It has not lowered consumer prices. And it has not increased supply. In fact, it has resulted in skyrocketing prices, price-gouging and an unreliable supply of electricity. In short - an energy nightmare." Governor Davis, a Democrat, pledged to work with the Legislature, consumers, and the business community to address the long term financial condition of the utility companies, warning that, "There is no easy solution. But, if I have to use the power of eminent domain to prevent generators from driving consumers into the dark and utilities into bankruptcy - then that's what I will do." In 1996, the Legislature and then Governor Pete Wilson, a Republican, launched a restructuring of California's electricity market. Under the plan, three investor owned utilities - Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric - were forced to sell off their generating capacity to unregulated private companies. The price of electricity - long regulated by the Californi a Public Utilities Commission - is now set instead in the commodities market. Today, due to increases in the price of fuel, the utilities must either drastically raise the price of electrici ty or face bankruptcy. Last week the credit ratings of Southern California Edison Company and Pacific Gas and Electric Company were downgraded. "The out of state generators who bought most of our utilities' power plants, are now charging California several hundred percent more for wholesale electricity than we paid just one year ago," the governor said. "Worst of all, said Davis, "there's evidence that some generators may be purposely withholding electricity from the California grid to create artificial scarcity which in turn drives up the price astronomically." The governor set aside $1 billion in his budget "to help stabilize the supply and price of electricity in the present and help provide new power generation to meet the demands of the future." He urged the State Legislature, which he has called into special session, to immediately send him legislation to: * Restructure the governing boards of the System Operators, so we can replace advocates for the energy companies with advocates for the public; * Overhaul the bidding process for electricity, which currently guarantees that each generator is paid according to the highest bid; * Streamline the process for utilities to enter into low-cost, long-term contracts for electricity and then apply pressure to the out-of-state generators to supply that power * Provide State regulatory agencies with mandatory authority to order any functioning generating facility down for "unscheduled maintenance" to go back on line; * Give the Public Utilities Commission 50 new inspectors to monitor - and stand guard if necessary - at any facility suspected of deliberately withholding power from the grid; * Make it a criminal act to deliberately withhold power from the grid - resulting in imminent threat to public health or safety; * Expand the authority available to the governor under a state of emergency in the event of imminent power outages; and * Provide $4 million to the attorney general to investigate and prosecute possible racketeering, market manipulation, price fixing and other potential violations by merchant generators. * Next, the Governor said, the Legislature must repeal the law that allows the three major utilities to sell their remaining generating facilities. Instead, he said, "We must require them to hold on to those facilities and sell their power to California consumers." Governor Davis also said the State must require its municipal utilities to sell their excess power to California consumers at reasonable rates. The governor also unveiled plans for a $250-million investment in conservation, urging Californians to "flex the enormous clout we have as consumers. We are 34 million strong and the sixth largest economy in the world. By reducing our electricity demand - by even a small amount - we can reduce the price, avoid shortages, and lower energy bills." Governor Davis proposed cash incentives for replacing inefficient refrigerators, washers and air conditioners with more efficient models. And he proposed a comprehensive campaign to create energy smart schools, homes, workplaces and communities. The governor rejected bankruptcy for the state's privately held utilities as an "irresponsible notion. "Bankruptcy," he said, "would mean that millions of Californians would be subject to electricity blackouts. Public safety would be jeopardized. Businesses would close. Jobs would be lost investment would flee the state. And our economy would suffer a devastating blow." Noting his administration has licensed nine new power plants and that five are under construction - after a decade of no major power plant construction in California - the Governor called for low interest financing for new peaking facilities and the "re-powering" of existing ones to make them cleaner and up to 40 percent more efficient. In return, Governor Davis said, these facilities must commit their power to California at reasonable rates. He also called for expanding the generating capacity under the control of the California Department of Water Resources. Davis said the State should require the nine campuses of the University of California, the 23 California state universities and the 109 community colleges to move toward energy independence through co-generation and other means. .
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