DATE: 5/11/01
 
BACKGROUND: California officials placed blame for California's electricity crisis on everyone but California's leadership. In criticizing Rep. Barton's emergency energy bill, H.R. 1647, in Thursday's House Energy and Air Quality Subcommitte hearing, California officials made the following erroneous points: California's Energy Commission chairman, William Keese, said, "[H.R. 1647] does not remove our major problem: high prices." California Governor Gray Davis's representative, Richard Skalar, accused power generators of "scalping Western states" by pushing up electricity prices with deliberate plant outages. The delegation also accused Texas gas pipeline operators of inflating transportation costs. They also claimed that air quality laws had nothing to do with California's energy problems.
 
TEN SECOND RESPONSE: High prices for electricity are just a symptom of the real problem: Soaring demand met by restricted production.

THIRTY SECOND RESPONSE: Environmental regulations and the way they are enforced have everything to do with California's energy prices. They are the reason no new power plants have been built in the state in over ten years. If Californians don't want high electricity prices, they should encourage the building of more power plants, not ask for price controls, which would only further limit supplies.

DISCUSSION: Environmental regulations have made it extremely difficult to build new generating capacity, particularly in California where environmental restrictions are more stringent. In fact, existing California capacity has been shut down periodically because generators have exceeded allowable emissions for given periods of time. New Source Review Standards for building new plants are so complex, and are changed so often, that many generators find the permitting process simply too complex. 
 
As for deliberate plant outages, generating plants in the United States are running between 96 and 98 percent of capacity. This is a dangerous level, allowing too little downtime for repairs and maintenance. As a result, plants are either shut down for safety reasons or break down from overwork. 
 
As for natural gas prices being too high, that is nothing a more abundant supply and increased competition wouldn't correct. Ironically, abundant supplies of natural gas exist off the California coast. However, it can't be drilled for because the entire California Coast, including 12 miles out to sea, is a national monument. California could request, and would probably receive, permission to drill there, thus greatly increasing the amount of electricity generated by low-cost, clean-burning fuel. 
 
As for California's request for price caps on wholesale electricity prices, price caps are desired only by those who neither took Economics 101, nor can recall the out of control inflation brought on by President Nixon's wage and price controls. Rather than encourage the building of increased production capacity, that will be unintentionally capped as well, perpetuating the power supply problem. California's electricity price crisis is due to surging demand and restricted supply. Until supply is allowed to meet demand and competition can take place, prices will remain high. 

 
By Tom Randall, Director of Environmental and Regulatory Affairs, The National Center Public Policy Research

Contact the author at: 773-857-5086 or TRandall@nationalcenter.org
The National Center for Public Policy Research, Chicago office
3712 North Broadway ­ PMB 279
Chicago, IL 60613