Socialized Electricity
Guest Letters
By Tom McClintock
Reprinted with permission of the author
Sacramento, where bad ideas never die.
Sacramento is once again host to a variety of plans for the government takeover of California’s power system. The private sector, it is said, has done such a terrible job of providing electricity that government must now step in to save the day. Thus, the Legislature is awash in proposals to spend billions of dollars of public money to acquire existing power facilities. Fifteen billion dollars has already been authorized for this purpose, and an additional $10 billion is pending in the Senate.
Meanwhile, Gov. Davis is losing about a $1.5 billion a month day-trading in the electricity market.
The irony is that after the expenditure of as much as $25 billion for “public power,” not a single inch will have been added to the transmission lines, nor a single watt to the generating capacity of California.
The root of California’s crisis is a catastrophic shortage of electricity. In a shortage, prices rise or blackouts occur. To reduce prices and avoid blackouts, the only permanent solution is to increase the supply. Merely changing the ownership of existing facilities leaves Californians with exactly the same shortage, only billions of dollars the poorer for it. Government takeover advocates argue that at least a government power authority will protect consumers against price gouging and poor management.
Unfortunately, government power authorities don’t insulate against price gouging. The biggest price gouger in this entire crisis has been the Los Angeles Department of Water and Power, which was generating electricity for $51 per megawatt hour and selling it back to California ratepayers for as much as $1,400.
Nor does a government takeover assure better management. Just a few years ago, the LADWP was buried in $7 billion in debt. The Sacramento Municipal Utilities District was a managerial laughing stock, having squandered hundreds of millions of dollars for a nuclear plant it barely used.
“Say what you will,” the government takeover advocates reply, “when push came to shove, the municipal utility districts of California are in great shape, while the private utilities are a basket case.” But one needs to look at the reason. Ever since the state reorganized the electricity market in 1996, the municipal utility districts were allowed to trade in a free market, while the private utilities were forced to buy power exclusively in a Soviet-style power exchange where the highest bid during an hour set all prices.
The municipal utilities were able to retain their generators. Government forced the private utilities to sell theirs.
The municipal utilities were able to enter into long-term contracts. Government prevented the private utilities from doing the same thing.
The municipal utilities were able to negotiate the lowest prices available for power. Government forced the private utilities to pay the outlandish prices on the government’s power exchange.
The municipal utilities were allowed to adjust their rates to reflect the actual cost of power to consumers. Government forced the private utilities to sell at astronomical losses.
The final argument is simply an ideological one: that power is just too important to be left in private hands. Really? Food is a great deal more important and private hands have kept this nation well fed for centuries. Picturing the Department of Motor Vehicles running the local supermarket should sober even the most euphoric of the government takeover advocates.
California’s Independent System Operator is predicting a 6,000-megawatt shortfall this summer. When there is no electricity on the transmission lines, it really won’t matter who owns them. During the hottest hours of the hottest days of the year, when as many as 6 million homes are without electricity, it may begin to dawn on most people that socialism doesn’t work any better in California than it did in the Soviet Union.
Senator Tom McClintock (R-Thousand Oaks) represents the 19th State Senate District in the California Legislature. His website address is www.sen.ca.gov/mcclintock.
