A United Defense
The big bad wolf of California’s electric power crisis is the private power generators, accused of manipulating the market to drive wholesale power rates into the stratosphere out of pure greed. Their pricing is insane, but only the federal government can fix wholesale prices. The Bush administration refuses to do that, leaving the state virtually helpless to deal with what many are now calling an energy cartel.
Gradually, however, the state is arming itself in other ways to do battle with the big power bullies, who appear more and more to have acted in concert to affect prices. Not as blatantly as the oil producers’ cartel, OPEC, but with even more dramatic results.
What is California considering?
* A new state power agency could build and run its own plants;
* Lawmakers might, as they are threatening, impose a windfall profits tax.
* The state could join with other Pacific states in a buyers cartel that would simply refuse to purchase power if the price got too high. The idea seems a bit desperate, but it has a “Star Wars” allure to it and just might work.
The focus is on six big private companies. They produce only about one-fourth of the state’s electricity, but they are the ones that have power available when it is needed the most, as the heat rises, air conditioners go on and blackouts are threatened. The private and municipal utilities naturally use their own power first, then turn to the outside generators to meet additional demand.
The state has forked over $7.2 billion to keep the lights on since the biggest private utilities went broke. The cost of power has hit an obscene peak of nearly $2,000 a megawatt-hour, charged by Reliant Energy of Houston during a recent hot spell. This price, more than 60 times the going rate a year ago, prompted a furious Gov. Gray Davis to threaten to use his emergency powers to commandeer Reliant’s power or even seize one of its power plants.
No one is eager for the state to take over private power plants. That smacks of dictatorship. But if the generators can get away with charging so much during a brief hot spell in May, what will the cost be in August?
The state is continues to investigate allegations that the six producers colluded to control the market or that they shut down plants to create a false shortage. The state may take legal action next month. However, even that may not force prices down.
The buyers cartel has possibilities. California would get Oregon and Washington to join in deciding the highest rate they are willing to pay for power this summer, a price still providing the producers a generous profit. If the generators wouldn’t sell at that level, the states would refuse to buy. This would mean more blackouts for a time, but the generators would be left with power they could not sell.
This extreme action would not be necessary, of course, if the Federal Energy Regulatory Commission accepted its responsibility under federal law and imposed a reasonable temporary cap on wholesale power prices. That is not likely If the states are left to their own devices, they can at least join forces. Then, for a change, let the seller beware.
