As winter has settled over the nation, it has become a media
mantra: the current crisis in California is the result of the
stateís deregulation of the electric power industry. The
implication, of course, is that the powerful and uncaring forces of
the free market have been loosed to wreak havoc on citizens who now
lack governmentís "protection." And, with many other states at
various stages of deregulation, some journalists seem to think that
what is now a regional crisis could soon be a national one. After
blaming deregulation "in part" for Californiaís troubles, Dan Rather
warned viewers of the January 4 CBS Evening News that
"residents of many other states could be next."
correspondent John Blackstone then discussed the mounting costs of a
California dairy farmer who uses electric milking machines. Declared
Blackstone: "Blame it on deregulation, an experiment state officials
once embraced, but now wish they could end....Consumer advocates say
Californiaís dismal experience provides a powerful warning to 25
other states moving toward deregulation."
But as Washington Post business writer Peter Behr
explained in a January 9 article, California officials left in place
many regulations that have effectively undermined the promised
benefits of a free market system, and he contrasted the California
experiment with the deregulation program, pushed by then-Gov. George
W. Bush and the state legislature, that will take effect in Texas in
about six months.
"California, whose system depended on competition among
independent electric power generators, has not had a major new power
plant built in a decade, largely because of the stateís stringent
environmental and siting regulations," Behr wrote. "By contrast,
Texas is awash in power plants, and more are being built."
"Furthermore," Behr continued, "California has attempted to
shield consumers from price rises with a complex, sometimes
conflicting set of price controls. The system has brought two major
utilities close to insolvency because they cannot pass $11 billion
in higher energy costs on to customers....Under Texasís plan,
electricity rates can go up twice a year to reflect higher costs for
producing power, including higher [natural] gas costs."
In other words, while California let local power companies bid
for electricity from competing independent producers, regulations
prohibited them from passing along higher than expected costs to
their customers. Government red tape also restricted the building of
new plants. That, coupled with the lack of long-term contracts for
electricity purchases, practically guaranteed supply shortages that
meant those independent producers could demand top dollar at times
of peak demand.
Thus, the mediaís condemnation of "deregulation" is simplistic
and inaccurate. As Investorís Business Dailyís Charles Oliver
reported January 8, "many economists say deregulation isnít to blame
because the state never deregulated," Oliver wrote. "The real
problem, they say, is the complex rules that govern the stateís
power system. These rules drive up the cost of electricity and make
it hard to add capacity when things are tight."
Yet despite the fact that economists wonít call Californiaís
experiment "deregulation," the media donít call it anything else. On
CNNís Morning News on January 9, for example, reporter Greg
LaMotte asserted that "deregulation...has become a political
nightmare." But if states such as Texas manage to deregulate their
electrical power industries in a way that benefits consumers, will
those same reporters be ready to declare deregulation "a political
dream come true?" Donít count on it.