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Perspective

An ode to the customer, the measure of all things.
Fortnightly Magazine - March 15 2001

a regulated residential rate. Should that not be a defense to nonpayment of an electric bill calculated at three times the regulated level because deregulation has intervened? Everyone but an economist would honor such a defense. The residential ratepayer claims to be party to a bargain. He asks only that the bargain be kept. It was the industrial users who sought deregulation. They had the savvy and the resources to shop in the marketplace for the cheapest power. But the residential ratepayers, without the potential to shop, saw no such pot of gold. When the time came to pass a deregulation law, the ratepayers were coaxed along by the promise of a rate cut, plus the commitment to keep rates capped for some time to come. So now it is not surprising that these same ratepayers feel besieged by demands for a rate increase. They feel stranded—not high on a sandy beach, but instead, on a rocky reef, now shown on the charts.

So, why do economists and editorialists say it was a terrible mistake to deregulate the wholesale market, but leave price caps on retail rates? The critics don't seem to understand. The entire program would have ended in some legislative waste basket without this nice little sweetener for consumers. How much political sex appeal would there be to an arrangement that called for retail rates to be uncapped and to rise in lockstep with wholesale prices? Don't forget that ratepayers can vote. Retail price caps might make no economic sense, but they passed political muster with flying colors. It is wholly fitting to think of stranded ratepayers as a complement to the stranded costs so cherished by utilities.

Why Force Customers to Conserve?

It is interesting that these same economists who see a disconnect in California between wholesale and retail prices (propelling the distribution utilities toward bankruptcy) still prescribe much higher retail rates as the proper remedy for what ails the state. For the most part, these economists neither pay electric bills in California nor depend on the favor of California voters. Yet they speak lightly of putting fresh burdens on Californians. The economists and their minions also argue that, apart from saving the distribution utilities from bankruptcy, higher retail rates would signal consumers to cut back on their power consumption. Let them stumble about in the dark, wrapped in blankets against the cold, or retreating to the basement in August, trying to cool off. If conservation is so great, why haven't we raised rates to the sky before this?

When the Federal Energy Regulatory Commission held a hearing in San Diego last summer, after rates had spiked in that city, the commissioners of the California Public Utilities Commission appeared as witnesses. They pleaded piteously for at least a temporary reinstatement of "just and reasonable" wholesale rates as developed by tried and true methods under the Federal Power Act. Go back to cost-based rates, they said. They spoke for consumers, and believed that consumers would see cost-based rates as fair. Their pleas were echoed by California officialdom, from the Governor