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Save Your Candles for Next Year's Summer of Darkness

September 05, 2000|PETER NAVARRO | Peter Navarro is an associate professor of economics and public policy at UC Irvine. E-mail:

The Legislature's recent $150-million bailout of San Diego Gas & Electric may be welcome news to the rate-shocked residents of America's Finest City. Perversely, however, the Legislature's act of charity all but ensures that next summer will be California's "summer of darkness."

Here is the problem. San Diego accounts for about 10% of the state's overall electricity demand. When deregulated electricity prices skyrocketed in San Diego this summer, there was one very important benefit from the whole fiasco: Cash-strapped San Diegans cut back dramatically on their electricity consumption.

With the rest of California running on razor-thin capacity margins and flirting almost daily with brownouts and blackouts, San Diego's forced conservation liberated about 400 megawatts of capacity. This provided just enough of a safety margin to keep the rest of the state from seeing its lights go out.

Next summer, Californians are not likely to be so lucky. With their rates now expected to be heavily subsidized by the Legislature's bailout now before Gov. Gray Davis, San Diegans will return to their more normal electricity consumption patterns. This virtually will guarantee that next summer will be a very dark one indeed for at least two reasons.

First, electricity demand will be up substantially next year. Second, it will be almost impossible for the state to substantially increase its electricity-generating capacity within the next 10 months. The question, of course, is what to do about this. At least a few things are crystal clear. The state's big three utilities--Edison, Pacific Gas & Electric, and SDG&E--are using a lethal combination of chicanery, bad faith and faulty bidding procedures to blatantly manipulate prices in the electricity generating market.

This must stop. The state's power producers are engaging in a wide variety of market abuses. The worst of these is so-called "megawatt laundering." This entails California generators shipping power out of the state and then having that power resold back to the California market at profiteering prices. This, too, must stop.

The Legislature entered into a devil's bargain with the big utilities and large corporate electricity consumers four years ago when it passed the original deregulation bill. Today, the wholesale electricity market has shattered into a thousand sharp pieces. Moreover, a workable competitive retail market to protect small residential and business customers simply does not exist. This must change.

The state's Public Utility Commission has no long-term strategy to address the crisis. Instead, the agency has devolved into partisan bickering between the two new Democratic appointees of Gov. Davis and the three holdovers from the Pete Wilson era. This, too, must change--and soon.

As for the governor, he appears clueless as to the deeper causes of the current crisis. Witness, on the one hand, his apparent eagerness to dig $150 million out of the general fund to bail out San Diego ratepayers--read voters. Witness, on the other hand, the governor's total lack of a comprehensive energy policy.

The tragedy here is that there are numerous and very constructive energy proposals languishing in his policy shop that would address many of our current problems. This lack of constructive action in the governor's office must also change.

Because if 2001 does give us a summer of darkness, the voters may well give us a one-term governor in 2002.

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