Just What We Need: Another State Energy Bureaucracy

Why does California need a new public power authority when it already has a Public Utilities Commission and the California Energy Commission? Neither Gov. Gray Davis nor the state Legislature has a good answer for that, yet they are busy forming a new bureaucracy that will do things it need not do and, in some cases, should not do.

Sifting through the ashes of California’s botched deregulation experiment, we’ve learned several important lessons about deregulation: that it leads to blackouts and price gouging because generators have an incentive to keep “reserve margins” tight so as to keep their prices high; that it makes us heavily reliant on natural gas-fired generation and steers us away from geothermal, fuel cells solar and wind power; that it fails miserably at promoting conservation; and that when wholesale prices are set by market forces rather than by the cost of generation, businesses and consumers are exposed to price shocks and volatility.

Before deregulation in 1996, the PUC and the energy commission, often working in tandem, were responsible for public energy, and they have the experience and resources to step in to be the major players in resolving the state’s energy crisis.

But rather than putting these two agencies back in charge, Davis and the Legislature have decided to create a whole new bureaucracy, one that has no experience in handling thorny energy issues and one that is bound to be in over its head.

The California Consumer Power and Conservation Financing Authority, which will be headed by S. David Freeman, Davis’ top energy advisor, will be responsible for energy conservation and the building of new plants to meet the state’s future energy needs.

But let’s just look at what happened when the state gave one of its existing agencies--an agency inexperienced in energy--the job of buying power for the state. The Department of Water Resources stepped in when two of the state’s public utilities, Pacific Gas & Electric and Southern California Edison, were at or near bankruptcy and couldn’t pay for power.

As Davis and top DWR administrators are the first to admit, the DWR was totally out-gunned in the fiercely competitive wholesale energy market.

Davis said, “It’s like the Yankees playing a stickball team. We’re totally out of our league.”

Can we expect a new public agency to perform any better? I think not.

Also, with the launching of the new agency, the state is clearly moving from an open and democratic administrative process to one in which decisions will be made by an unelected energy czar. This removes crucial energy decisions from the public eye.

Neither the governor nor the Legislature has put forth a clear vision of what our electricity market should look like in the future or what government’s role should be in it.

Should California move toward more competition in the market or a government monopoly? Should the state really build new power plants or leave that up to the utilities or the private market? Should we bail out the utilities or buy their bankrupt carcasses at pennies on the dollar and create a government power monopoly? These questions need better answers before we build a duplicative and inexperienced new bureaucracy.