http://www.washingtonpost.com/wp-dyn/articles/A21488-2001Jan4.html

White House Calls Summit On California Power Crisis

By Rene Sanchez

Washington Post Staff Writer

Friday, January 5, 2001; Page E01

LOS ANGELES, Jan. 4 -- The Clinton administration is summoning California Gov. Gray Davis (D) and leaders of the state's beleaguered utility companies to the White House next week in the hope of solving the state's escalating energy crisis, senior administration officials said today.

White House intervention into the morass of soaring electrical-power costs and scarce supplies is the clearest sign yet that California's predicament is becoming a national issue.

California's economy is larger than that of all but five countries. But with its utility companies threatening bankruptcy, and many of its businesses and consumers getting buffeted by rising bills, it is on uncertain footing for the first time in years.

As the crisis has grown, so has a rhetorical war among politicians, consumer advocates and power-company executives over who is to blame and how problems stemming from California's shift to electricity deregulation can be solved, or reduced. Administration officials said they hope that by bringing all sides to the White House they can establish a new tone for negotiation and forge a compromise.

"We feel that this is a serious enough situation that every party has to be willing to compromise and go the extra mile to find a way out," a senior administration official said. "We believe every effort should be made to bring the parties together in search of at least a temporary solution."

Details of next week's White House meeting were still being worked out late today, but it may occur on Tuesday. Steve Maviglio, a spokesman for Davis, said the governor welcomed the administration's overture and would use it to urge federal energy regulators to cap the wholesale price of power. "That's the big kahuna for us," Maviglio said.

As expected, the California Public Utilities Commission today granted the state's two largest utilities emergency rate increases. Under the plan, residential rates in California will rise by 9 percent while commercial and industrial rates will rise between 7 percent and 15 percent.

In a prepared statement, Davis said he reluctantly supported the increases. "Four years ago, Californians were promised that deregulation would reduce the cost of electricity," the governor said. "If I had my way, there would be no rate increase to consumers. But given the colossal failure of California's deregulation scheme, the PUC's decision was unfortunately necessary."

But the rate increases were still far less than the 30 percent Southern California Edison Co. sought and the 26 percent Pacific Gas and Electric Co. wanted, and they will last for only 90 days. Both utilities contend that they have lost more than $9 billion since last fall because they have been prohibited from passing on soaring wholesale prices to customers and are now on the brink of bankruptcy.

Standard and Poor's, the major credit rating agency, agreed that the increases will make only a small dent in the utilities' cash-flow problems. It sharply downgraded the utilities' debt, which will make it even more difficult for the utilities to borrow money to buy electricity.

California, which has not added a major power plant in a decade, ran short of electricity during last summer's unusually hot weather, when demand for air conditioning soared. Now blackouts are threatened by cold weather, and out-of-state generators have been reluctant to deliver power because they're not sure they will be paid. Under deregulation, utilities no longer control the power produced by their plants; they must sell it at wholesale cost to a state-chartered power exchange.

Clinton administration officials said they do not expect to emerge from next week's summit with a permanent solution. Rather, they are hoping for at least a short-term compromise. Energy Secretary Bill Richardson and Treasury Secretary Lawrence H. Summers will attend next week's meeting, officials said.

For Davis, the trip to Washington will be his second in the past few weeks to focus on the state's energy problems. In late December, he met separately with President Clinton and Federal Reserve Chairman Alan Greenspan.

So far, California has not had to impose rolling blackouts to conserve power, but in recent months it come close to resorting to that tactic.

© 2001 The Washington Post Company

-- (in@energy.news), January 05, 2001

Answers

Why doesn't the media tell the WHOLE story, which is how the wholesale suppliers are price gouging to screw the consumer. Things that people need to survive should NOT be deregulated!

-- What a scam (de@regulation.sucks), January 05, 2001.

scam:

Because that's not what's happening, and nobody with any information claims it is, *including* the consumer groups. You've reached a sad state when you won't be happy unless the media tells you the lies you want to hear!

Meanwhile, the failure of deregulation is that it wasn't really deregulation. In a classic case of legislating that we have our cake and eat it too, California decided to regulate consumers' rates, but NOT regulate suppliers' wholesale prices. They've tried to legislate themselves a free lunch.

As a result, Californians decided they wanted no pollution, they wanted no new utilities built in their state, they wanted low prices, they wanted to exempt themselves from that nasty old law of supply and demand everyone else must obey. And when the sun refused to rise in the west, they demanded that *somebody else* bail them out.

Well, that sucked the big utilities dry, so another sugar daddy must be found. Californians want power, but they DON'T want to pay for it, and they DON'T want to generate it, so someone else will have to do both of these things for them. And if the rest of us have to pay extra so that Californians don't have to, the politicians will hear about this. Let those who won't pay the cost freeze in the dark. They've *earned* it.

-- Flint (flintc@mindspring.com), January 05, 2001.

Heavens Flint. We've lots of seniors out here. They show up from everywhere. Simple honest folk many who fought in Dubya-Dubya-Two to keep this country free. FREE. What is it about FREE you don't understand? No Christmas lights? Humph! You owe them you arrogant prick!

-- Carlos (riffraff@cybertime.net), January 05, 2001.

Energy activists have had a hard time convincing policymakers, the media, and the general public that electricity deregulation would fail to live up to the many promises pushed by deregulation promoters.

No longer.

The electricity crisis in California, which has been plaguing the Golden State since May, can be blamed squarely on deregulation.

Since May, ratepayers in San Diego have been paying rates as much as three times higher than the previous year. Ratepayers in other California cities may have to pay at least an extra $6 billion (and climbing) in rates in order to bail out their utilities, which have been forced to pay outrageous prices for wholesale electricity. Meanwhile, California has been on the edge of rolling blackouts, which black out certain parts of the electricity grid for an hour or so, in order to keep the whole grid from going down.

How did California get into this mess, when deregulation was sold with the promise of cheaper electricity and better service? The simple answer: deregulation promoters not only misled the public, they misled themselves.

The problems now gripping deregulated electricity systems have been predicted by free-thinking analysts for decades, yet ignored by free- market ideologues, activists, and politicians of all stripes. Suppliers trying to sell a commodity product that requires large investments to produce will attempt to maximize profits by charging different customers different prices (known as price discrimination, which under regulation is illegal). Suppliers will collude to raise prices and profits, and they will merge with their competitors in order to monopolize markets (under regulation, prices are regulated, and monopoly is tolerated since prices are regulated). By ignoring these simple truths, which are fundamental qualities of electric power, free market reforms have caused the mayhem we now see in California (and, to a lesser degree, in New York, New England, and the Midwest).

The airlines have been masters of price discrimination, forcing business travelers to pay fares several times higher than vacation travelers. They also use their ticketing computers to send price signals to each other in a game of collusion that keeps profits up. Major airlines also maintain "fortress hubs" where they have a monopoly on air service, allowing them to set prices due to lack of competing air lines. The largest airlines have also engaged in numerous mergers, reducing competitors at every turn.

Deregulated electricity suppliers have quickly followed the lead of the air lines: deregulated electricity suppliers routinely offer deep discounts to their most profitable customers (specifically, large industrial customers) while charging higher rates to less desirable ones (such as residential and small commercial customers). They collude in spot markets by withholding power until prices rise to more profitable levels. They maintain their local monopolies by denying their competitors equal access to the transmission system. They have bought each other in a frenzy of mergers. And, they try to keep prices high for the long term by failing to build enough power plants to meet demand.

Indeed, deregulation has already led to huge volatility in electricity prices, which have spiked at prices more than 100 times normal in many parts of the country over the past several years. For example, during the summer and fall of 2000, wholesale prices for electricity in California were, on average, more than four times as high as prices during the previous year, with occasional price spikes of 50 times normal prices. Californians have watched helplessly as deregulated power suppliers took an extra $6 billion out of the state’s economy, or more than $200 out of the pocket of every person living in the Golden State. Recent estimates show that Californians are being plundered for over $100 million per day.

If Deregulation is the Problem, Reregulation is the Answer

Unless investor-owned power companies are regulated, they will always take advantage of consumers. Regulation is needed to keep power suppliers from charging the highest prices they can get away with. Regulation is also need to make sure the utilities build enough power plants to meet the demands of their customers for the foreseeable future.

In addition to regulation of investor-owned utilities, utility ownership by consumers, either through municipal utilities or cooperative utilities, is the best solution. Municipal utilities are owned and controlled by a community and its citizens—municipal utilities have been a part of the electric power industry since its beginnings in the 1880s. Cooperative utilities are owned by their members. Since municipal and cooperative utilities are owned by their customers as nonprofit utilities, they have no incentive to charge high rates.

So, if you live in a state that has deregulated its electric power industry, you should urge your policymakers to reregulate the utilities before the problems in California show up in your electric bill. You should also urge the creation of municipal and cooperative electric systems, which have provided their consumer/owners with reasonably priced, nonprofit power for decades.

If you live in a state that hasn’t deregulated its electric power industry, you should urge your lawmakers to leave it regulated—just say no to deregulation!

-- Shameless Price Gouging (say@no.com), January 06, 2001.

I read the papers Jack.

Don't need your c/p taking up space.

-- Carlos (riffraff@cybertime.net), January 06, 2001.

Carlos:

I meant what I said. Those in California have attempted to legislate themselves an exemption from the law of supply and demand. They want cheap energy and they want someone else to subsidize it. They won't even permit building power plants in their state. They may CALL it deregulation, but in practice they strictly *regulate* the rates consumers must pay *regardless* of the costs of production. This is a selfish and short-sighted policy now coming home to roost.

I believe freedom does NOT encompass the freedom not to have to pay your own way, or the freedom to force someone else to sacrifice for your convenience. Shame on you, Carlos.

-- Flint (flintc@mindspring.com), January 06, 2001.

Flint,

If you were a resident of California, what would be your answer to the old 'nuclear power plant resting on an earthquake faultline' conundrum?

-- flora (***@__._), January 06, 2001.

jeez flint {major eye roll}

-- cin (cin@cin.cin), January 06, 2001.

Gotta go now -

Thought I'd pass along a quick read. Seismic safety is a significant issue here, & I'm not aware of any easy solutions at this point.

http://www.energy.ca.gov/nuclear/overview.html

-- flora (***@__._), January 06, 2001.

"I read the papers Jack. Don't need your c/p taking up space."

Translation of Carlos:

Please don't post anything here that is in direct opposition to my narrow way of thinking and makes me move my eyes slightly outside the narrow range of vision I have set them to. I'd rather not think, okay? So don't post anything here that is logical, soundly reasoned, lengthy, rational, or otherwise thought provocative, because it makes me uncomfortable.

Okay?

-- Carlos (somnam@bulistic.com), January 06, 2001.

Despite Flint's attempt to twist the facts, the think the point is clear:

When you hear the word deregulation, grab your wallet!

-- USA News & World Report (head@lines.com), January 06, 2001.

USA:

I agree. Free markets do not place arbitrary government-enforced limits on prices, as has happened in California. This is NOT "deregulation" in anything except the hopeless misnomer they applied to it. It ain't deregulated according to any definition any economist has ever heard of. And it failed *because* it's not deregulation. That's my whole point.

I agree California faces some difficulties in generating their own cheap power. They don't have rich natural gas or oil resources, they are prone to earthquakes, they are already polluting themselves out of fresh air. If these factors combine to make power more expensive in that part of the country, then this is one of the costs those who choose to live there must choose to pay. So be it.

Anywhere someone might choose to live will have relative advantages and disadvantages. If you want to keep all the advantages and get others to subsidize the disadvantages, you deserve to freeze in the dark.

-- Flint (flintc@mindspring.com), January 06, 2001.

{Donning my devil's advocate beanie...}

If Silicon Valley is truly the engine driving the US economy and a majority of the produce and dairy products consumed in this country originate from California, don't you believe it is in the interest of the federal government to pay close attention to this crisis? {The last figures I saw claimed that this state is the 7th or 8th largest economy in the world}. The benefits to you may very well outweigh the obvious costs.

Oh, & let's not forget about Hollywood...

{Beanie off - tongue out of cheek}

-- flora (***@__._), January 07, 2001.

Yeah Flint, What Flora said! {sticks out tongue}

-- (cin@cin.cin), January 07, 2001.