Scott Sutton
Scott Sutton

Californian Power Trips

If a detailed, factual study were made of all those instances in the history of American industry which have been used by the statists as an indictment of free enterprise and as an argument in favor of a government-controlled economy, it would be found that the actions blamed on businessmen were caused, necessitated, and made possible only by government intervention in business. The evils, popularly ascribed to big industrialists, were not the result of an unregulated industry, but of government power over industry. The villain in the picture was not the businessman, but the legislator, not free enterprise, but government controls. - Ayn Rand

In California, capitalism has failed.

In 1996, California Gov. Pete Wilson joined legislators in drafting a bill to deregulate the state's energy market. At the time, the price of electricity in California exceeded the national average by over 50%. According to its proponents, deregulation would provide much needed relief for long-suffering consumers. Backed by money-hungry corporate interests, the advocates of laissez -faire argued that deregulation would result in lower prices. Deeply concerned about their constituents, the gullible legislators bought the sales pitch. Assembly Bill 1890 passed unanimously.

As most everyone knows today, deregulation has proven a disaster. Far from providing relief, the bill delivered Californians into the greedy hands of out-of-state power suppliers. Corporate raiders such as Enron, Reliant, and Duke Power have mercilessly price-gouged California utilities, pushing some to the point of bankruptcy. Without the guiding hand of regulatory control, California's infrastructure has suffered repeated rolling blackouts over the past year. And no relief is in sight.

Recognizing the folly of deregulation, gutsy California politicians have rallied to the state's defense. In his January State of the State address, Governor Gray Davis acknowledged that "California's deregulation is a colossal and dangerous failure...We have lost control over our own power. We have surrendered the decisions about where electricity is sold - and for how much - to private companies with only one objective: maximizing unheard-of profits." Unless the power suppliers cut their rates, the courageous governor threatened to seize their facilities. California Senate Leader John Burton took a bold stand of his own, saying, "(s)ooner or later the state has got to let these buccaneers know that we're not going to tolerate what they're doing to us ... The only thing these exploiters understand is possibly a little counterterrorism." And, not to be outdone, tough guy Attorney General Bill Lockyer said that he'd like to personally escort the chairman of Enron Corporation "to an 8-by-10 cell that he could share with a tattooed dude who says, 'Hi, my name is Spike, honey.'"

State and national media pundits have also informed the public of the failure of deregulation in California. L.A. Times columnist Robert Scheer opined that "(c)apitalism is falling apart." Likewise, MIT economist and New York Times columnist Paul Krugman blamed California's woes on "placing blind faith in markets." Responding to the Bush administration's stubborn refusal to cap wholesale power prices, the San Francisco Chronicle angrily charged that "...the White House appears (un)willing to confront the companies and middlemen who are profiteering from the crisis to an unconscionable degree." And the LA Times admonished the administration for being "ideologically fixated on the free market while ignoring the reality that a handful of energy suppliers - most of them from Texas - are manipulating the market to make obscene profits at our expense."

For their part, the out-of-state power suppliers claim that they have not participated in price gouging. But savvy Californians aren't fooled by such whitewashing. According to a field poll, nearly 60% of Californians believe that the crisis was contrived by power companies as a way to make money. And when push comes to shove, 44% of Californians support the idea of seizing the power plants.

So goes the standard storyline of many accounts of the California energy crisis. Deregulation and corporate greed are commonly cited as the cause of the soaring prices, rolling blackouts, and utility bankruptcies that now plague the state. If not for the efforts of benevolent politicians, profiteering "buccaneers" will soon push California over the brink of economic ruin. In short, the tyranny of the free market must come to an end.

When I first heard of the crisis last summer, I was amazed. If California actually deregulated its energy market, the state should benefit from abundant supplies, lower prices, and greater efficiency. So, why is it such a mess? Did the state also repeal the laws of economics?

While the standard storyline may be a profitable one for state-worshipping politicians and media outlets, it bears little resemblance to the reality of the crisis. The reality is that this fiasco was wholly precipitated by state intervention, not deregulation and corporate greed. Responsibility lies with the politicians who crippled California's energy market with regulations and controls; not those who produce the energy that the state now so desperately needs.

AB 1890

Were we directed from Washington when to sow and when to reap, we should soon want bread. - Thomas Jefferson

In 1994, a report by the California Public Utilities Commission (PUC) cited regulatory micromanagement and centralized planning for the soaring cost of power in California. Two years later, state legislators passed the 'deregulation' bill, which included the following provisions: