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Public Radio's Environmental News Magazine (follow us on Google News)

California Deregulation

Air Date: Week of

Host Steve Curwood talks with Living on Earth’s political observer Mark Hertsgaard about the effect of deregulation on California’s current energy crisis.


CURWOOD: It's Living on Earth. I'm Steve Curwood. Californians may have gotten used to electricity shortages during the hot summer months. But now, in December, threats of blackouts are again common. To talk about the situation, I'm joined now by Living on Earth's political observer Mark Hertsgaard. Hi there, Mark.


CURWOOD: You know, Mark, we heard that the governor could barely turn on the lights on the state Christmas tree, huh?

HERTSGAARD: Yeah, he managed to turn them on for twenty-five minutes with a last-minute infusion of power from the grid, and then had to turn them right off because of the great shortages here. So, twenty-five minutes, and people are saying that that could be his political life expectancy if he doesn't get this problem straightened out pretty quickly.

CURWOOD: Well, what's the immediate reason for these power shortages in your home state?

HERTSGAARD: Some people are blaming the weather. It has been colder here, and especially up to the north of us it's been colder. And that has prevented the utilities in Washington and Oregon from sending down power that would normally come to California in a tense, tight market like this. But the real problem is that twenty-five percent of California's generating capacity is offline right now for maintenance. Now, a lot of people are asking, that seems like a very high number. Why is that the case? And there have been suspicions that the power-generating companies have been keeping that capacity offline in order to artificially increase prices by creating the appearance of a shortage.

CURWOOD: So there are concerns about price-fixing, about all this?

HERTSGAARD: Very much so. And in fact, there are now six separate investigations, Steve, by federal and state authorities, into the possibility of price gouging here in California.

CURWOOD: Wait a second, Mark. I thought back in 1996, when deregulation was signed into law in California, that the pitch was the other way. That this would be cheaper. What am I getting wrong here?

HERTSGAARD: Indeed, Steve, it was written into the actual legislation. Twenty percent reduction in prices, we were promised. And the key assumption there was that if California deregulated its market, that we would have so many suppliers that they would bring fair competition. That's not happened. Instead, our power generating facilities were bought up by a relatively small number of companies, and they've had sufficient market power, according to the federal government, that they have been in a position to allegedly restrict the amount of supply out there and to drive up the prices artificially. That's what the regulators are looking at now, and it's also why, in Sacramento, the state capital, you've got enormous pressure to re-regulate the electricity industry. You remember, under regulated markets your local utility built the power plants and sold you the power. They got paid a certain amount of profit over and above that, and it was all pretty straightforward.

CURWOOD: Mark, what's all this havoc in the electricity market in California going to do to the environment?

HERTSGAARD: In the short term, it's very damaging. They are bringing back online a number of power plants that had been closed because they were violating air pollution standards. It's also going to make it a lot harder to either close the dams up in the Sierra Nevada mountains or increase the water flow through those dams, because now everyone's main concern is just keeping the lights on. In the long run, it could encourage energy conservation, and indeed efficiency measures would be the quickest, cheapest, most reliable way to bring our supply and demand into equilibrium now. The problem is that under deregulation, the power companies have an incentive to sell more electricity. They get paid more the more electricity they sell. So, in order for us to really move in the direction of energy efficiency, there's going to have to be some re-regulation of the industry, and we'll see if that comes out of Sacramento. And what Governor Davis does.

CURWOOD: Mark Hertsgaard is Living on Earth's political observer. Thanks again, Mark.

HERTSGAARD: Thank you, Steve.



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