Lessons for all in California crisis

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Lessons for all in California crisis A Boston Herald editorial Tuesday, December 26, 2000

California politicians are beginning to learn, very late in the game, that price controls always make things worse.

Eight months after the dimensions of the state's electricity crisis became clear, the state's Public Utilities Commission last week solemnly intoned, ``We believe that retail rates in California must begin to rise.'' But first the commission will audit the major utilities.

This is fiddling while Rome burns. The two major utilities have lost $8 billion since the spring, selling power at a state-required 5 cents per kilowatt hour. At recent prices they have been recovering a nickel on every dollar they spend for power. Paying only a nickel, homeowners can run pool pumps around the clock.

Faced with reluctance of generating companies throughout the West to sell to almost cash-less California utilities, Energy Secretary Bill Richardson has twice ordered generators to keep supplying the California grid. He also ordered federal dams to send hydroelectricity to the state. (He hasn't named a price for those forced transactions.)

Richardson's plea for governors to support a ``regional price cap'' is supported by California, but opposed by New Mexico and Wyoming. Federal energy regulators have ordered a ``soft cap'' of 25 cents per kilowatt-hour for sales to California, meaning that generators may charge more if they can ``justify'' the price.

All this amounts to setting up a review board on the Titanic to approve or reject an application to launch a lifeboat. The federal dams are using water scheduled for release next year, a big gamble on next year's rainfall. Federal regulators have just ordered utilities to make long-term supply contracts with generators - just when generators have them over a barrel. (Amazingly, the state's so-called ``deregulation'' of the generation market in 1966 forbade long-term contracts.)

The state's long history of discouraging energy development is coming home to roost, hastened by growth of the Internet that has been ramping up demand at 8 percent per year in Silicon Valley. Most power comes from natural gas; pipelines into the state are limited, but will California permit exploration of promising fields offshore? No, the state raised such a stink that federal waters were ruled off limits a decade ago.

Even where gas is available, can a generator build a plant? ``Not in my backyard,'' the neighbors say. The city of San Jose last month denied Calpine, a generating company, permission to build a 600-megawatt plant. Calpine has since withdrawn requests to build five smaller plants elswhere.

More power plants are the solution, but none have been built in California for 10 years. If owners can get a market price for the output, people will line up to build them and power prices will fall. A smart state administration would try to build plants of its own on a crash basis. It should be able to sell them later at a nice price.

New England added 2,000 megawatts of generating capacity last summer and will add another 3,000 by next summer, a supply expansion of close to 20 percent. The California experience provides our region with plenty of lessons in what to avoid.

http://www.bostonherald.com/cgi-bin/www.bostonherald.com/lo-res2.bg/www.bostonherald.com/news/opinion/edta12262000.htm

-- Martin Thompson (mthom1927@aol.com), December 26, 2000


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