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Jewish World Review April 13, 2001/ 20 Nissan, 5761
Marianne M. Jennings
http://www.jewishworldreview.com --
THE 46% plus increases in electric rates in California are decades late.
California has done for years, long before deregulation was ever an issue,
what I did when I served as an Arizona Corporation Commissioner, the body
responsible for setting utility rates here: I under priced electricity so
consumers had lower rates. Real prices catch up eventually. Ironic that
just a few months ago Ed Begley Jr. was a California cult hero for demanding
mandatory electric cars. Be careful what you wish for. E-Z-Bake ovens now
crank out Spago Alfredo. California screaming will come to each state in
time; hence I confess my regulatory sins.
Public utilities have long operated on grocery store margins with
staggering capital investment. Also, commercial users cross-subsidize
residential users, giving them artificially low rates. Everyone, from
Silicon Valley nerds to home latteites, bought and behaved as if electricity
costs were low and would remain so.
Further exacerbating the under pricing problem is stagnant supply. Because
of marginal rates of return, environmental backlash, grief from siting
committees, irrational homeowners with the NIMBY syndrome (Not in my
backyard) and general hostility toward rate increases, utilities have not
been building new capacity or putting dollars into R & D for alternative
generation. Aging plants mean shortages will grow more acute.
California's deregulation plan was hare-brained. Deregulation in a market
with insufficient supply and under pricing was daft. But, why the under
pricing for so long? Rationalizations are always complex but here boil down
to the universal human trait of a strong desire to avoid whiners.
My tenure as a commissioner required a decision in the first rate case for
the Palo Verde nuclear plant, a facility that was completed during the height
of both cost overruns in that industry and anti-nuclear fervor. No one could
have anticipated then that Palo Verde would become the largest nuclear
facility in the United States and one of the world's top three performing
nuclear plants. The environment for pro-nuclear regulators such as I was
about as friendly as a bonfire reception by loggers for spotted owls.
During that rate case Arizona Public Service (APS) (on whose board I
served from 1987-2000) established that even with Palo Verde capacity it
would be at dangerously low margins by the year 2000 (and they are). The day
will come when Arizonans, who damned the plant as a California resource they
were paying for (several California utilities do own a portion of the plant),
will regret their forced cancellation of Units IV and V. Palo Verde capacity
was necessary and the cost overruns were the result of NRC zeal, not
mismanagement. Yet I did not place the full cost of the plant in rates.
I failed to do so despite better judgment because when I proposed such,
the citizenry began a recall. Katherine Harris has nothing on me in terms of
cruel and unusual media treatment. There were the hues and cries of "rate
shock," shareholders getting wealthy from ratepayers, and "pro-business"
regulators.
Emotions ran high and hell hath no fury like ratepayers with hot tubs who
don't want to pay a dime more for the kilowatts to run them. The
inevitability of the laws of supply and demand are lost on those who parade
the elderly before you, complete with can openers and budgets. I pledged to
work and did work to raise money to aid the working poor and the elderly with
their utility bills, but warned that the consequences for not paying the
actual costs of electricity would be dire. I was booted out of one Rotary
meeting for this heresy.
California is what under pricing hath wrought. Even a good deregulation
plan can't make up for the cold, as it were, realities of a flawed market.
With no new meaningful capacity for decades, utilities swapped power, hoped
for rain and cheap hydropower, and massaged cash flows. The alleged fat in
the capital and operating budgets of utilities that California consumer
groups decry is long gone. California has teetering electric giants that are
victims of those who demand pristine plant-free views from their homes, no
nukes, and air conditioning to go with it all.
The only long-term solution to the California crisis, Arizona's impending
one, and other states on the wires is a free market in which consumers pay
the real cost of their electrons. I hid that cost out of expediency. I
blacked out, as it were, on basic economics. My hope in this confession is
that policy makers, regulators, politicians and environmentalists don't
succumb once again. Rate shock, when consumers finally pay true costs, is
inevitable. But Californians should welcome any electric shock - it would
mean the watts flow
04/06/01: That pill, Julia Roberts
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