Maybe the Texas Power Folks Felt It Was Time to Let Prices Drop
Last week was a strange one on the California energy front. The lights stayed on. Wholesale prices for natural gas and electricity spiraled downward. Supplies were so abundant that generators actually began idling some plants. By the end of the week, Gov. Gray Davis--who no doubt has grown weary of seeing his head depicted in newspaper cartoons as a giant light bulb--was chirping happily about corners being turned, about wars being “basically” won.
Yes, there were spoilsports who cautioned that the reversal of fortunes could prove to be a passing fluke. They mentioned relatively mild weather. They cited the temporary availability of hydroelectric power, the result of a thin snowpack melting early in the Pacific Northwest. The crunch, they warned, would come in July and August.
Such qualifiers, however, were all but lost in what became an almost comic competition among the assorted players to explain the turnaround. Having wasted months blaming one another, they now began to bicker over who or what deserved credit for saving the day.
The governor insisted his plan was working. This might have come as a double surprise to those Californians who were unaware he had a plan. Davis, though, maintained that long-term electricity contracts and his campaign to shame out-of-state generators into playing nice finally had begun to pay off. Proponents of deregulation, naturally enough, made the case that it all was a triumph of a free market. And then they made the case some more.
“The market is working,” said Gary Ackerman, executive director of the Western Power Trading Forum, “and it’s providing cheaper wholesale power more quickly than any regulatory scheme could ever do.”
“We’re going to be surprised to see the results of the market starting to correct itself,” said James Macias, executive director of the San Jose-based Calpine Corp. “I’m optimistic things are improving.”
“This shows what happens,” a New York energy consultant told the Washington Post, “when you keep your hands off and let the markets work.”
And so on.
That California’s two major energy utilities have been turned into road-kill, that the state’s collective energy bill had increased by something like $50 billion in a single year--these sorts of details were left unmentioned by the free market spinners. See market go haywire. See market fix itself. Way to go, market. That was their point.
Advocates of conservation, in turn, insisted California consumers deserved credit. State officials, adjusting their numbers to account for population changes and variations in weather, calculated that 11% less electricity was consumed in May than in the same month of the previous year. And this was before the launching of many of the major conservation initiatives planned for the summer.
Severin Borenstein, director of the University of California Energy Institute in Berkeley, suggested that this early spurt of conservation might be prompting suppliers to lock into contracts for late summer at lower prices than had been anticipated: “It could be that the sellers are starting to think that maybe we are going to get a lot of conservation, and that conservation is going to drive prices down.”
From other quarters came speculation that all the investigations into alleged gaming of the market--even the feds, not exactly quick-draw artists in this shootout, have initiated a probe--finally persuaded the generators to back off a bit. One Texas CEO told a Times reporter he and his colleagues were being advised by lawyers to stay out of California, lest they be slapped with a subpoena or two. And state Atty. Gen. Bill Lockyer’s crack about hoping to lock away an energy tycoon in a prison cell with “Spike” apparently made its way to certain executive suites in the Lone Star State, where it was found to be unfunny, if not unnerving.
Of course any scenario that has suppliers, for whatever reason, deciding to bring California prices back down at least to low orbit carries with it the implication that they had the power to launch said prices in the first place. Exercising market power, it’s called. Gaming the market.
Setting questions of legality aside, what seems obvious is that the private energy folks, Texans mainly, were smart cookies. They made our deregulation scheme work out quite nicely--for them. As smart people, they no doubt are familiar with the fable of the goose that laid those golden eggs. As state Treasurer Phil Angelides said not long ago:
“I have got to believe there has been a lot of meetings in boardrooms of these energy companies, . . . people sitting down and saying, ‘Hey, guys. Maybe we ought to be thinking about where this might go, and what it might do to our industry as a deregulated industry.’ ”
Angelides put special emphasis on the word “deregulated,” and for a reason: What’s at stake this summer in California goes beyond the price of electrons or whether rolling blackouts can be avoided. No, what’s at stake is the shape of the state’s, and perhaps even the nation’s, energy model to come--free market, re-regulated, public power, private power, conservation, exploration, what? And those smart Texans this year have put their hands on billions and billions of reasons for wanting to keep things just the way they are.
