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California power nightmare is just the beginning

What Californians are experiencing over soaring electricity prices and “rolling blackouts” is the ghost of Reagan’s 1980s’ deregulating past haunting the present.

It’s that ghost, and a careless California that mishandled its energy needs, that’s signaling to all of America what it can expect in soaring energy prices over the next decade.

California is a state whose electric utilities can no longer afford to buy the electricity they have to supply, knowing the price they will receive from the consumer has already been determined.

Power corporations, with generating capacity inside and outside California, refused to sell to the state’s two utilities for fear they won’t be paid.

So the state now has to buy it.

This chaos and price gouging is a specter hovering over all of America’s future.

All Americans had a sniff of the problem last year, when gasoline suppliers withheld supplies to drive up prices. The distinction between the gas pump and the electricity meter, however, is that the public doesn’t expect to be gouged by its state-regulated public utility. The public sort of understands -- even if it doesn’t like -- the supply-and-demand economics that play havoc with gasoline prices.

Not so when it is electricity, natural gas and water. We expect some protection.

Public utilities, common across the United States, were nothing more than regulated monopolies. One source was permitted to supply electricity to an entire state, or segment of it, with guaranteed supply and a guaranteed price set by the state utility.

Under deregulation, a public utility had to decide whether it was going to be in the generating business or the supply business. Several power companies in California chose the supply business, which means buying electricity from producers to send through their power lines to homes and businesses.

Generally, across the country, this end of the business would continue to be regulated by the state utility commissions.

The generating side was to be an unregulated free-for-all, like the oil industry, with generating capacity heading into fewer and fewer hand. The greater control would guarantee higher profits as a multiplicity of former suppliers is transformed into an oligopoly, a situation where businesses might be strong enough to influence the market but not strong enough to overpower other competitors.
The myth of deregulation is that all this new competition will drive down prices. In some places, for a longer-or-shorter period, that may well be true. Then watch what happens, for there’s absolutely no control over these new wholesalers of power.

California will solve its problem by throwing taxpayer money at it, without acknowledging that state pampering of electric companies during deregulation was prelude to the current crisis. Deregulation in California did not produce the competition that would have kept prices down.

Yet this isn’t a California-only crisis. It’s America’s tomorrow. To return to Reagan, there’s a broader U.S. historical setting.

The American idea behind public utilities and a regulated monopoly was the notion of “common good” of public control over the essentials of public living: the utilities, light, heat, water, sewage.

What the Reagan administration helped destroy was the American idea of a “common good” element in any supply of goods and services, whether it was air traffic control or public forests or public utilities. In the United States the “common good” ownership or regulation of anything was equated with socialism or Marxism by the same people who disguise “capitalism” as “the free market.”

To a large extent, the capitalists and proto-capitalists behind Reagan succeeded.

They have succeeded in part by convincing all Americans that they are key players in and will all benefit equally from this unrestrained “free market” world.

As consumers if not capitalists we can’t dodge the fact we’re all partly at fault for the rising prices to come. We want the best of both worlds. We don’t want nuclear, don’t want dirty skies and global warming from coal and oil generation, but we do want cheap electricity, and we don’t work hard enough on promoting the development of clean sources.

In California, utilities don’t have the money to buy the electricity to meet demands. The taxpayer does. The wholesalers have the state and its utilities over a barrel. Just as the oil industry, last year, had all America over an oil barrel.

On electricity, it’s simply that California is over the barrel first.

National Catholic Reporter, January 26, 2001