One of the top news stories recently has been the California electrical power “crisis”. Information regarding increasing electrical power consumption vs. the lack of new supply or generating capacity has been readily available to anyone who cared to check for many years now.
Why is it suddenly in the forefront as a “crisis”? The growing population of the United States is also no big surprise and should lead anyone who has been keeping tabs on electrical power consumption to conclude that increased electrical generation supply (capacity) will continue to be needed.
News reports on TV about the recent “rolling blackouts” in central and northern California have featured executives of companies bemoaning the fact that a blackout costs them thousands, hundreds of thousands, or even millions of dollars for each hour that they have no electricity.
If that is truly the case why don’t they have emergency generators?
Many companies depend on computers, computer networks, just-in-time delivery and many other key (electricity dependent) business models. Power blackouts happen all the time (usually unexpected) due mostly to weather conditions.
Why wait for a major problem to crop up before some constructive action is taken?
These companies need to have in place contingency plans for an uninterrupted supply of electrical power.
Who is behind the current woes facing California?
It all depends on who you ask. People have been pointing fingers at the power companies, the electrical power generating companies, OPEC, the oil companies, the state regulators, the politicians and just about anyone else involved in the energy business. So who is the real culprit?
Media coverage of the situation has contributed to the crisis by not disclosing relevant facts to the public thus leading people to incorrect assumptions.
Here is just one example:
A recent ABC News Nightline TV program hosted by Ted Koppel (1/24/2001) was discussing the California power crisis with three guests. Ted Koppel asked Dan Morain (deputy Sacramento bureau chief for the Los Angeles Times) “why did they (the utilities) give up their generating capacity? Isn’t that what the power suppliers are supposed to have?” Dan Morain replied “Well it’s a point of no small debate, but the fact is that the utilities made a ton of money by selling off a lot of their generators.
They sold them for more than they thought they were going to get.” No other follow up question was asked and there was no other mention of why the utilities sold their generating capacity during the rest of the program. This leaves the viewer of this Nightline program thinking (incorrectly) that the only reason that the California utilities sold their generating capacity was pure greed.
The truth is that the utilities were required by California law (AB1890 – the main bill deregulating the utilities passed by the California state assembly) to sell at least 50% of their generating capacity.
The current power crisis in California is being portrayed as a shortage of electricity supply. According to Edison International (Parent Company of Southern California Edison) the reason why California is experiencing power outages is: [“There have been no power outages or rolling blackouts to date due to the shortage of electricity. P
ower outages may occur however, if energy suppliers withhold electricity in order to raise prices, are concerned that they will not be paid by California’s utilities, or if hydropower from the Pacific Northwest is sharply curtailed due to low rainfall or energy disbursement.” (statement from SCE web site)] Other evidence also points to the fact that the power supply problem is more of an economic crisis than a supply crisis.
Some other factors contributing to the California power crisis include:
1) The price for a barrel of crude oil has virtually tripled since bottoming out at around $10 per barrel in December of 1998. (some power generation plants use oil as generation fuel)
2) The average real cost of electricity in the United States (in constant 1982-1984 dollars) has decreased each year since 1983 and is now almost 32% less than in 1983. (according to U.S. DOE statistics) This does not give people much of an incentive to conserve if they are paying over 30% less for electricity today than they were almost 18 years ago. ( Many economists have stated that unless prices for electricity to end users increase there is unlikely to be much of a drop off in electrical consumption.)
3) The price of natural gas has just about doubled in the last two years (approximately 50% of California’s power generation plants use natural gas as generation fuel)
4) Under the California deregulation plan utilities were required to buy their electricity on a day-to-day basis on the “spot market”, which is subject to wide price swings, instead of being allowed to lock in reasonable prices with long term supply contracts.
5) Lack of new generating capacity – “For the twelve years before I took office, this state failed to build a single major power plant – not one” (From California state of the state address given by governor Davis on January 8th, 2001.)
Many people are exclaiming that deregulation is a huge mistake and that California should quash deregulation of it’s utilities. (California governor Davis recently said in his state of the state address “But we must face reality: California’s deregulation scheme is a colossal and dangerous failure.“) Some states are considering cancelling or postponing utility deregulation indefinitely solely based on the current problems that California is experiencing. However some states have enjoyed success with properly planned deregulation.
The current power problems now facing California have come about because of poor deregulation planning not because of deregulation itself. California is not the only state undergoing deregulation of it’s electrical utilities.
Lets take a look at PJM – The Pennsylvania-New Jersey-Maryland electricity grid. (For comparison the combined population of PA, NJ and MD is almost 26 million which represents about 77% of California’s population according to the latest figures from the U.S. Census Bureau.) All three of these states are undergoing utility deregulation and have not run into the big problems that California is currently experiencing.
The fact that deregulation is working in these three states is not a major news story. The only news we hear is reporting of the current fiasco in California. Utility deregulation (in California or elsewhere) is not a failure. The only failure is the poor planning by people who set up California’s guidelines for deregulating it’s utility industry.
Who is the real culprit? It’s Not the government, OPEC, the oil companies, the state regulators or the politicians. The real culprit is a combination of many factors but is mostly the simple law of supply and demand with some greed thrown in.
The American people continue to waste electricity, waste water and buy gas guzzling SUV’s in record numbers. (The average combined fuel economy for Vans, SUVs and Pickup Trucks has declined since 1995 according to the latest U.S. DOE statistics.)
The end result is higher prices for oil and energy along with spot shortages due to market conditions.
People also refuse to hold politicians accountable for not crafting intelligent long term legislation.
Instead they ask their elected officials for handouts and greedy promises which are happily granted to them by politicians hoping to win another term in office. What we get is the end result of greed. Not greed by “big business” but greed on the part of individuals.
As the old saying goes: “You get what you pay for.” (Or in this case you don’t get what you don’t pay for!)