July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
Another Take on California
EPSA exec rebukes McCullough's claims.
If the issues confronting California's ratepayers weren't so important, it would be easy to say that Robert McCullough's efforts () are best published on April Fools Day.
McCullough has once again trotted out a mix of tired, unsubstantiated charges and selective use of data to further support his preference for the expensive inefficiencies of cost-plus regulation.
While we would be the first to agree that the design of the California market was a disaster waiting to happen, we cannot abide the fabrication that generators withheld power from the market to boost profits. Nothing could be further from the truth-it has been documented that those power plants ran flat out to supply electricity to California.
New proof of this comes from the South Coast Air Quality Management District's (SCAQMD) recent environmental audit of the Los Angeles basin. A SCAQMD executive said during the crisis power plants were run "at higher capacity than ever before." Output reached "unheard-of" levels and the generators almost ran the plants "into the ground" providing power.
McCullough's use of western regional capacity data comparing 1994 and 2001 to claim power generators kept electricity from the market is also misleading.
Comparing historical reserve data for the entire region ignores the fact that California is a net electricity importer (almost 20 percent) that hadn't built sufficient generation capacity. The state's individual lack of a generation cushion meant that California couldn't replace its traditional imports that were unavailable in 2000-2001 due to a wide and extended regional heat wave, drought, and western population growth.
Finally, McCullough is also wrong that imposing price controls has solved the Golden State's woes. It hasn't, and officials there are already worrying about a new crisis in 2003.
As every student learns, a correlation of events is not the same as causation. That's especially true here-the imposition of price caps happened to come as demand shrank.
The current combination of mild weather plus a slow economy that keeps electricity demand down won't last forever. And when times turn around, the same factors that brought shortages could easily strike again.
All those price controls have done, coupled with the many other political risks of doing business in a hostile state, is keep more plants from being built, leaving California at risk. State energy officials know this and are already asking energy companies to reconsider.
More rolling blackouts in California are not inevitable, however. The Federal Energy Regulatory Commission's push for increased competition through development of larger regional transmission organizations there and elsewhere would lead to greater reliability at the most efficient price without sacrificing the service consumers expect and deserve.
Californians would be much better served by focusing on the power of robust markets supported by more sensible regulation. Rehashing tired conspiracy theories won't improve service or bring one more kilowatt to Golden State consumers.
Lynne H. Church
Electric Power Supply Association
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