State Power Crisis Could Give O.C. Static

The current furor over electrical service in California has given rise to some interesting, and convoluted, machinations in the state Capitol. And though almost every part of the state will feel the impact of any decision made about providing electricity, Orange County residents have a number of reasons to be especially wary of what might dribble forth from the legislative caldron in Sacramento.

First, if the state takes over production and distribution of electrical power in California, it almost inevitably is going to make unilateral decisions about siting new power facilities. With the private utilities, local governments have at least some control over siting decisions. The state can be much more capricious: Big energy plant at El Toro, anyone?

And if the Legislature cottons to this sort of capricious power, other “regional facilities” (El Toro airport) might get placed in Orange County, despite local opposition.

Second, Orange County is an attractive area. That attraction has helped foster a healthy and growing high-tech economy. High-tech industries want reliable electrical power as well as all the other amenities Orange County offers.

If the state controls electrical power distribution, it could decide that certain areas of California should get preferential allocations to attract the highly coveted high-tech industry. Think of this as a kind of state-run, statewide redevelopment program. In such a scenario, Orange County could be at the short end of the stick concerning electricity distribution.

Third, and most troubling, governments throughout the state often have been tempted to raise revenues by levying utility user taxes. Imposing these taxes can be very tempting for legislators who want to raise government funds. This is especially true if the taxation rate is not clear from the information provided on the customer’s bill.

Once they control power generation and distribution, legislators may become enthralled with the possibility of increasing electricity bills gradually and quietly, and siphoning off ever more money for the state coffers. Those who are skeptical of the state engaging in such practices should keep in mind that until fairly recently some municipally owned water systems charged their customers relatively higher rates and then creamed off the extra money for non-water-system purposes.

In theory, this practice has been curtailed by recent state legislation. Despite the official prohibition, however, local governments have shown remarkable creativity in charging questionable expenses to municipal water systems. Though the Legislature has prohibited local governments from engaging in this oblique practice, it is questionable whether they could exercise the appropriate restraint if they had access to a statewide electrical billing system.

Fourth, energy plants and distribution systems cost money. Private utility companies raise that money in the marketplace. The investor owners provide the capital and take the associated risks. If the state takes over the electrical power distribution system, the taxpayers of California will provide the capital and be exposed to the risk.

The state’s decision last week to buy electrical energy in long-term contracts financed by revenue bonds is a first step toward exposing taxpayers to risk. Let’s hope rates charged to consumers will be sufficient to finance the revenue bonds.

Fifth, if the state takes over energy production and distribution, the employees of the system either will become state employees or at least employees of the state-owned “power authority.” Public employee unions in California are very powerful. It is not inconceivable that they would be successful in pushing the Legislature to allocate more and more funds for system employee salaries and benefits.

In the private sector, two things mitigate against excessive expenditures of this sort. First, the owners of the enterprise have an incentive to be efficient. Second, in privately owned utilities, many of the employees are also stockholders and, hence, understand the need to balance salary expenditures with other factors.

Not incidentally, a public utility employee group could add considerable leverage for statewide tax increases that, in turn, would further erode Orange County’s attractiveness for employers who are considering moving out of the state.

Orange County has not fared well in Sacramento. It pays more in taxes and gets back less than any county in the state. City governments, school districts and special districts in Orange County all have a more difficult time in providing services because of this chronic imbalance.

The county government, which provides most public health and social services to Orange County residents, gets a particularly raw deal from the state. Orange County residents might want to think long and hard about the implications of state government taking over the production and distribution of electrical power in California.

Given the constellation of things that could result from a state takeover, it is entirely possible that Orange County residents would wind up worse off. Perhaps most disturbing, a state takeover of the electrical system could very well hurt Orange County more than any county in the state.