Light at the Tunnel’s End? No, Not Yet

California’s energy crisis is far from over. If there had been any doubt, the heat wave in July erased it, as electricity demand soared, energy prices spiked and the system stumbled.

California suffers from serious shortages of electricity transmission capacity, and it desperately needs new power plants. Dealing with these issues requires tough public policy action, not more empty rhetoric.

The U.S. General Accounting Office recently warned that California is dangerously lagging in getting new power plants positioned, permitted and built. Rep. Doug Ose (R-Sacramento), chairman of the House Government Reform Subcommittee on Energy Policy, cautioned: “Certain politicians in California have tried to convince the public that there is no real shortage of supply. The GAO report conclusively dispels that notion.”

Since the beginning of California’s energy crisis in 2000, state officials have flailed about for someone to blame. They have sought to deflect responsibility onto everyone else. They have failed to take serious remedial action to restore a workable system. They have made and then sought to break contracts that would guarantee future power supplies. And they hope the public won’t be able to figure out whose fault it is when the system breaks down again, as it almost inevitably will.

Granted, there’s plenty of blame to go around: the legislators who crafted California’s flawed deregulation law; regulators who implemented it in a way that virtually guaranteed the worst possible results; energy companies that allegedly abused and manipulated the system; environmentalists who blocked the construction of needed power plants; and politicians more interested in dodging accountability than in making tough decisions.

An analysis by Severin Borenstein, the highly regarded director of the University of California Energy Institute, and others showed that nonutility energy providers could reap huge profits under some circumstances without breaking the law. It’s also quite possible that some energy providers--most notably the now-bankrupt Enron Corp.--weren’t satisfied with the huge profits available to honest players, and either stretched or broke the rules.

Where do the state’s three privately owned electric utilities stand in all this? The utilities have been victims of this crisis, along with the ratepaying and taxpaying public.

The summer of 2000 was the worst. In an effort to keep the lights on, utilities bought power at stratospheric prices, confident they would be allowed to recover those costs in full through deferred rate adjustments. But they weren’t. It was a classic case of being forced to buy high and sell low--a recipe for economic disaster.

The results were predictable. California’s largest utility, Pacific Gas & Electric, was pushed into bankruptcy and Southern California Edison narrowly escaped the same fate. Those two utilities, as well as San Diego Gas & Electric, were forced to rely on the state to buy power for them.

California politicians now are seeking to strong-arm power generators to renegotiate even modestly priced power-supply contracts. Several energy companies have agreed to new terms, although for reasons not immediately apparent.

The state is involved in a very public face-off with San Diego-based power generator Sempra Energy Resources, which is building new power plants and has agreed to supply a large amount of electricity to California over the next decade. The state has threatened to void that contract.

Was Sempra’s contract too rich? It doesn’t seem so. (I say this as an outside observer with no connection to the company.) Its prices are lower than those in the renegotiated Calpine contract that the state ballyhooed as a wonderful deal for customers. Furthermore, Sempra’s average prices are about 20% lower than the average of all power-supply contracts in the state’s portfolio.

So why the brouhaha? Don’t think of this as a rational public policy debate. Think of it as an election year ploy. If there’s an opportunity for politicians and regulators to gain a few popularity points by engaging in name-calling, why not do it?

State officials would be well advised to remember Abe Lincoln’s famous observation that you can’t fool all the people all of the time.

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Stanley W. Hulett, a former president of the California Public Utilities Commission, is an energy consultant.