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Giving Deregulation a Bad Name By: Chris Weinkopf
FrontPageMagazine.com | Sunday, February 18, 2001

As the state struggles to keep its lights on, it powers a nationwide laugh track, inviting snickers from Americans in 49 other states. They always thought Californians were dim-witted flakes now they have proof.

So far, California's ineptitude has cost its taxpayers $2 billion a figure that continues to climb at the rate of more than $50 million a day. Now Davis wants the state to spend as much as $9 billion more to buy the California power grid, and $10 billion on top of that for long-term power contracts.

While a billion here and a billion there might seem to most people like real money, for Davis it's a small price to pay to reclaim his political viability.

Before Stage 3 power alerts and rolling blackouts darkened his reputation, Davis must have thought of his 2002 re-election bid as little more than a warm-up for the 2004 presidential primaries. Now his re-election is far from assured, and he enters the national scene not as the leader of the country's biggest and best state, but as chief spokesman for a national laughingstock.

Thus Davis' need to scapegoat deregulation as the cause of California's energy woes. He complains that "we have lost control over our own power . . . to private companies with only one objective: maximizing unheard-of profits."

Deregulation is out. Re-regulation is in.

And state government will get bigger and more powerful.

Under the latest installment of Davis's energy plan, unveiled Friday, the bureaucrats who couldn't manage deregulation will be given ownership and control of all 32,000 miles of transmission lines that are counted on to deliver power throughout the state.

That follows up on Davis' earlier proposal to let Sacramento dictate where in-state energy producers sell their juice and at what price. Davis has warned that producers who don't comply might find their plants seized through eminent domain. To keep consumers in check, the state is dispatching power cops to patrol the streets at night and slap fines on anyone found burning the midnight oil.

But in his expensive haste to blame deregulation for the failures of government ineptitude, Davis risks subjecting the state to a prolonged future of yet more government ineptitude. He's also discarding the one viable way out of the state's self-inflicted mess.

The real problem with deregulation is that the state never tried it. What Sacramento and utilities billed as "deregulation" five years ago was actually a new, only slightly liberalized regulatory scheme.

Real deregulation fosters competition. In Pennsylvania, which deregulated power in 1997, choice in the energy marketplace has saved consumers an estimated $3 billion. California, though, made switching utilities burdensome and expensive - which is why only 1.7 percent of residential users ever did.

Real deregulation allows market factors to bridge gaps between supply and demand. Not so in California, where Sacramento fixed retail energy prices. Because consumers never had to pay for using more energy, they never saw any reason to conserve.

Add that to the state's legacy of NIMBY environmentalism resulting in a dozen years without a single major new power plant and a crisis was all but inevitable. The energy-intensive new economy sent demand soaring 25 percent in eight years, while supply rose by only 6 percent.

Monday-morning quarterbacking, of course, is an easy sport, but it has its purpose keeping the team from making the same mistakes week after week. By pinning the failures of government on deregulation, Davis risks losing seasons for many years to come.

California's biggest energy problem is a lack of supply, which owes itself to the state's stringent policies on power-plant construction. Davis's calling energy providers "marauders" and "pirates," then threatening them with price freezes, further regulation and eminent domain is no way to attract new supply to the state.

As for the demand side of the equation, the only way to spur conservation is to let consumers pay the price for their wastefulness and enjoy savings for their thrift. But Davis has been reluctant to compromise his political viability by letting electric rates go up. Davis's fellow California Democrat, U.S. Sen. Dianne Feinstein, has shown a more clear-headed understanding fo the power crisis.

Investor's Business Daily quotes the senator as noting that "in a strict deregulated system, the (higher) rates would cause people to conserve. Absent that, there is no incentive to conserve." As for building more plants: "It is very important that the state truncate the permit process."

Davis would be wise to let up on re-regulation and heed Feinstein's free-market advice. But political paranoia could be clouding his thinking.

Chris Weinkopf is an editorial writer and columnist for the Los Angeles Daily News. To read his weekly Daily News column, click here. E-mail him at chris.weinkopf@dailynews.com.

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