More Efficient Power for Lean, Competitive Times : Electricity: Public utilities are right to balk at financing any more independent producers.
New power plants for California, already awash in excess generating capacity? Definitely a bad idea, but not one that’s coming from the state’s power utilities. The California Public Utilities Commission must be sensible and courageous enough when it meets next week to abandon a once-useful but now-obsolete regulatory policy, and encourage the more efficient energy infrastructure that California needs.
Because the state’s electric utilities--and I should say at the outset that I have served as a consultant to almost all of them--are closely regulated, they have provided a means of implementing a variety of social programs. Many have been beneficial. California has led the way in giving electric companies incentives to develop programs that help consumers conserve energy and save money. Environmental factors are taken into account in utility planning, with the result that it is safer to inhale than it has been for many years.
It’s a good thing the state’s regulators were there to give a push, for the state’s electric utilities have not in the past seemed overly enthusiastic about adapting to change, whether to preserve the environment or to prepare for the competitive era that is already upon them and will strike with full force at around the turn of the century. Unfortunately, the situation now seems about to reverse, with the commission defending the status quo against a new era, one in which California will have to compete for jobs by, among other things, providing low-cost, reliable electricity to all consumers: large manufacturers, small service establishments and struggling residential customers.
A bit of history. At one time, the commission properly sought to end the utilities’ infatuation with the erection of ever-larger plants by imposing a bidding process that would require Southern California Edison, San Diego Gas & Electric and Pacific Gas & Electric to buy power from independent producers, including wind farms and solar arrays, when those competitors could supply electricity more economically than the utility could. Leave aside the question of whether the bidding was conducted fairly or was rigged to favor suppliers using generation methods the commission felt were environmentally superior. The result was a vibrant independent power sector.
The problem for California is that this once-desirable policy has outlived its usefulness. Partly because of past overbuilding by the utilities, partly because the companies were forced to buy more power than they thought necessary and partly because of the recession, California is burdened with a large amount of excess generation capacity. Edison, for example, estimates that it has more than enough power-generating capacity to serve its customers’ needs until 2005. The excess sits there, paid for by customers in high rates and by shareholders in low profits.
Yet, because of a process begun in 1988, before recession, riots and assorted calamities slowed growth, Edison and other utilities may be forced by regulators to finance the construction of still more capacity. This, in pursuit of a policy that has already achieved its objectives: Edison already obtains 23% of its energy from renewable resources and 34% from independent power producers.
Should the commission force an industry with too much capacity to contract for still more, it would load hundreds of millions of dollars of costs onto businesses that California is already struggling to keep in the state, and onto ordinary, recession-afflicted residential customers.
So, California regulators should reflect. President Clinton has had the courage to say that the welfare system once favored by liberal Democrats has become obsolete. So, too, with state energy policy. Forcing utilities to buy new capacity, now unneeded, would be folly. Instead, we should require them to do so only when such power can be made available at an economic cost below what Edison and others would incur by using their own idle facilities.
Sensible regulatory policy cannot, alone, solve California’s economic problems. But clinging to old nostrums can certainly hinder recovery. UCLA’s business forecasters had it right when they said, “Pretending that the old glory days will return, when economic growth could be taken for granted, or even turned away, is unrealistic.” Growth will return, to be sure. But its vigor could depend on those responsible for regulating the state’s energy supply system.
