Larry Elder
An "energy crisis" in California? Say it ain't so.
In 1996, California legislators deregulated the wholesale price of electricity. At the time, however, the legislature also agreed to fix retail prices -- the price consumers pay -- for a period of five years. At the time, this seemed like a good deal. Most predicted a decline in wholesale prices. Therefore, for a period of five years, utilities expected to reap fat profits before being fully tossed into the cold, cruel world known as the free market.

But, oh-oh, instead, wholesale prices went the other way. The California population growth, the unexpectedly high demand for energy sparked by rapid expansion of the computer industry, and the non-construction of power plants conspired to hike wholesale prices higher than most experts predicted.

The three major power suppliers in California -- Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric -- now teeter on the brink of bankruptcy. Remember, they cannot raise their prices in order to pay for increasingly expensive wholesale power. Again, rather than allow the utility companies to charge fair market prices, California's Democratic Gov. Gray Davis spends approximately $50 million a day of state reserves to buy wholesale power, and proposes to float billions of dollars in bonds to pay for future power purchases and to restore to the general fund money already spent.

Even the generally anti-free-market Los Angeles Times seemed concerned. Its senior economics editor, James Flanigan, said, "The bonded indebtedness of the state will grow by at least 80 percent to deal with a problem that did not exist even a year ago and would not exist now, were it not for the early political decision against rate increases, energy experts and economists say." Obviously, sooner or later somebody pays. And that somebody is California taxpayers and ratepayers.

Now what? Davis refuses to deal with the crisis in the most commonsensical, expeditious and fair way -- remove retail price caps. So this "crisis" reflects not a failure of deregulation, but of government.

Even Newsweek called California's crisis "man-made." "And then there's the California Nightmare," said Newsweek. "Its problems are largely man-made. More than any other state, experts say, California bungled its efforts to deregulate its electric utilities. Along with poor energy policy, California has a booming population that consumes ever more power."


Larry Elder

Larry Elder is a best-selling author and radio talk-show host. To find out more about Larry Elder, or become an "Elderado," visit www.LarryElder.com.