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Power Politics 

Why a retreat from electricity deregulation is a victory for PG&E, and a loss for you and me

Wednesday, Sep 20 2000
Albany management consultant Nancy Snow is a skilled chef and likes to dine at home. She prefers fresh vegetables to frozen or canned, and uses red meat only rarely. On those rare red-meat occasions, she's apt to choose lamb over beef. In her dress, Snow, who is 66, leans toward plain clothing, bought used. "Slacks and a sweater or a blouse. Sneakers. A simple dress made of cotton," she explains.

For her spiritual philosophy Snow chooses Episcopalianism. And when it comes to buying electricity for her household, Snow elects to pool her purchases with others of like faith through Episcopal Power and Light, a San Francisco group that helps churches and congregations switch to "green" power sources such as the wind, the sun, and the Earth's inner heat. "Creation is sacred," says Snow, who attends All Soul's Episcopal Church in Berkeley, "and we have human responsibility to play a role in preserving the health of our planet."

Whether Snow (or anyone else in California) will be allowed to choose among energy providers -- for environmental, cost, or other reasons -- has become a real question in recent weeks. The state's initial foray into creating a market-based energy system has created, instead, a consumer-price disaster, as electric rates in the San Diego area quadrupled, shuttering businesses and pauperizing families. The San Diego meltdown, combined with summer blackouts in San Francisco and a looming epoch of higher electric rates statewide, cast doubt on the state government's 4-year-old effort to make the market for electricity more like the ones that deliver sneakers, or lamb.

Last month, Gov. Gray Davis signed rate-capping legislation effectively returning the state's electricity market to pre-1996 days, when regulated monopolies such as Pacific Gas & Electric were the only game in town. In addition, PG&E and San Diego Gas & Electric have asked the federal government to permanently control the wholesale prices California utilities pay for energy. Consumer groups have called for a permanent return to this prior system, under which three private monopolies provided the bulk of the state's power. Nearby states, which had been planning electricity de-monopolization, are now reconsidering such moves.

And in San Francisco, where the electricity restructuring program was already viewed with great suspicion, this summer's meltdown proved (at least to the suspicious) the folly of any attempt to bring market-based solutions to market problems. One leftist pamphlet, called the San Francisco Bay Guardian, even went so far as to say that troubles in the electricity market proved that things like electricity and, say, housing should never be left to the free market.

Davis plans to spend the autumn determining whether to turn back piecemeal to the old monopoly days, or push ahead into the unknown world of competition among energy providers. Political empath that he is, Davis will almost surely make his decision based on the power of electoral winds and public opinion. So it would be too bad if Californians, having sweated through the complicated morass of the state's new electricity market, came out yearning for the old, monopoly way.

Turning back now may look like turning toward lower electric bills. Actually, though, turning away from a market-based power system means handing billions of dollars of your money to utility monopolies that, to say the least, don't deserve this kind of beneficence.

This summer's energy disaster may seem to be the result of allowing electricity to be priced in the free market. Actually, though, the disaster was caused by a grotesque system of market regulation that has been anything but free, and was, in fact, shaped, detail by detail, by energy-monopoly lobbyists who care a great deal about the fortunes of PG&E and SDG&E, and very, very little about Nancy Snow, or you, or me.

Strolling down the isle of the Castro Safeway on a Sunday morning, a shopper might note that a 15-ounce can of Hormel brand Dinty Moore Stew costs $2.19, which is about what it cost last month, and nearly the same as it cost last year. This prosaic fact -- that beef stew of a consistent quality is always available on store shelves at a consistent price -- actually represents a minor miracle. The broiled loin in a can of Dinty Moore is brought to the store shelf through a vast network of ranchers, Oklahoma feedlot speculators, Chicago futures sharpies, slaughterhouse contract buyers, and hundreds of other market players. As a result, vertiginous fluctuations in global grain prices, undulating yearling steer prices, and bouncy carcass prices are barely felt by the Dinty Moore fancier.

If Hormel CEO Joel Johnson were to wake up one day in a player's mood and decide to weather the market on his own, he might get lucky. He'd buy beef cheap, sell stew dear, and pocket the difference. But eventually, he might see prices spike so high that he'd have to sell Dinty Moore at $9 per can, just to break even. His customers, atheist and otherwise, would turn to Campbell's Grilled Sirloin Steak With Hearty Vegetables (, which, because its owners had bought beef under long-term contract, could still offer their product at the customary $2-plus price. And Castro shoppers would remain in a happy world of cheap, plentiful stew.

In restructuring California's electricity market in 1996, legislators spawned the dream that a new market for electricity might emulate markets for raw materials such as beef. The century-old evolution of agricultural commodity markets, after all, helped make America the world's low-cost bread basket. The competitive restructuring of U.S. railroads in 1980 spawned the world's most efficient just-in-time cargo network. And the breakup of Ma Bell in 1984 spurred the swiftest creation of wealth any industry has ever seen.

But the case of electricity restructuring in California was different. Here, the regulated electricity monopolies -- PG&E, San Diego Gas & Electric, and Southern California Edison -- used their outsized political clout to fashion a "free market" that is not a free market at all. It's a botched abortion of measures designed to aid monopoly electricity providers, customers be damned.

About The Author

Matt Smith


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