The California Public Utilities Commission’s and Gov. Gray Davis’ half-hearted responses last week to San Diego’s energy crisis do little except possibly postpone the region’s bankruptcy. The fact is, San Diego’s excessive electricity rates are a symptom of a dysfunctional energy system crippled by a poorly planned deregulation program that threatens to wreak havoc on California’s economy unless drastic and immediate steps are taken to correct it.
That’s the conclusion of a report produced by the CPUC’s own staff and the California Electricity Oversight Board , a report that has apparently received little notice from the press or our political leadership in Sacramento.
According the report, deregulation has left the state’s energy system with no government oversight or planning, and manipulated by a possibly corrupt Independent System Operator (ISO) and Public Exchange (PX) run solely for the benefit of the power industry.
Among the study’s findings:
– California took deregulation to an extreme, relinquishing more control over the industry than any other state. With passage of AB-1890 establishing electricity deregulation, the state government essentially abdicated any oversight, control or planning for reliable energy distribution and production in California. All pricing oversight was passed on to the Federal Energy Regulatory Commission and the ISO. This has essentially allowed the energy cartels to run amok.
– The ISO and PX, both nonprofit corporations, are governed by boards filled primarily with energy industry officials who stand to profit by the decisions and actions made by their boards. “Neither of these private organizations is accountable to the state or its consumers, and neither is charged with the task of keeping electricity prices reasonable for consumers and businesses,” says the report.
– Industry explanations for excessive electricity prices don’t hold water. “The price increase is not explainable by increased costs, weather, volumes (of usage) or even the existence of a much higher wholesale price cap,” the report said. Instead, California’s deregulated electricity system appears designed for manipulation, and it appears sellers were “withholding power from this market in order to drive up costs” and reap larger profits by selling power at higher “replacement reserve” prices.
– The ISO has refused to turn over data to the CPUC and EOB that would reveal what drove prices up, raising suspicions of dubious behavior on the part of its executives and resulting in the demand for an investigation by the state Attorney General. “Such an investigation would provide the factual foundation (needed) to recover any illegally obtained profits,” concluded the report.
– The excessive high electricity prices “had one predictable result. Many energy companies, including some participants in the California market, made very high profits during the second quarter.” San Diego-based Sempra Energy, with a 34 percent increase in revenue, was among those cited, but it wasn’t the worst. Some energy firms reported income increases of more than 200 percent, with one company, NRG Energy, netting an 18-fold increase in second quarter income.
– California’s shortage of new electric generation capacity stems from deregulation, not environmental or safety regulations, as suggested by the power industry. With deregulation, the financial risk for building new power plants was placed on the industry instead of the ratepayers , a risk the industry has shunned in favor of short-term profits. Indeed, the report concludes the excessive power prices “do not necessarily fund new investments in electricity supply or delivery reliability , they may flow solely to power producer profit margins.”
– Relaxing environmental regulations to promote construction of new generating plants would more likely stall new construction, concludes the report. Such an action would result in lawsuits by residents and local government agencies which would, most likely, be supported by the courts.
– Energy conservation, as now promoting by the energy cartels, is not a solution by itself. In fact, the state’s highly successful energy efficiency program was dismantled in the 1990s in favor of competition under deregulation. In other words, deregulators hoped increased power consumption would spur the growth of competition within the energy industry.
– “Real time metering,” another solution pushed by the energy industry, would be costly to put into effect and would result in higher, not lower, energy bills for many consumers.
– The report concludes “the current structure of California’s electricity industry creates risk that the high prices and poor reliability of this summer will continue for months, perhaps years to come.” It also warns “ISO seeks to expand its control” to neighboring states. “This would widen even the further the gap between accountability and control.”
This report shows California, not just San Diego, stands on the brink of economic disaster. The state’s experience with electric deregulation has been a debacle.
It’s time lawmakers in Sacramento stand up to the profiteering energy cartels and pull us back from the precipice. Only then can we take another look a deregulation, this time with an eye toward protecting the consumer and not the profits of industry moguls.
