Our Fake Energy Crisis: What Really Happened in California

Here at the annual World Affairs Conference at the University of Colorado, the assorted experts from around the globe may sometimes be wrong, but they are rarely in doubt.

This lends a happy, "But the emperor isn't wearing any clothes," simplicity to much of the discussion. Shibboleths are ignored, obligatory bows to those who are only partially informed are skipped entirely, and folks get right down to the lick-log.

Thus, Harvey Wasserman, a longtime leader of the anti-nuclear movement, cutting to the chase: "Anyone who advocates nuclear power as a solution to our energy problems should be shut up in a padded cell."

Wasserman can, of course, discuss the details of nuclear plant design, risk, insurance, regulation, waste disposal, etc., ad nauseum. It's just that he'd rather not waste his time on the obvious.

One session I attended here not expecting to learn much new (but it's always nice to have your prejudices confirmed) was titled "Our Fake Energy Crisis: What Really Happened in California."

The aforementioned Wasserman waded in with a will, describing the dastardly tale of ruthless utility companies determined to unload the "stranded costs" of their monumental folly in building nuclear plants -- $20 billion worth in California's case -- on the ratepayers. Given that utility lobbyists literally wrote the California deregulation bill, it's quite a reach to blame it on anyone else.

This is a familiar tale to those who have read beyond the basic coverage of the California situation. Wasserman tells the story well, with a fine contempt for the greed and stupidity behind it all and for the politicians now seeking cover. But he presents a media mystery that has me stumped -- one of those cases of the media overlooking the obvious so completely that one is bereft of a handy explanation.

Some parts of California are not suffering from power problems of any kind. In Los Angeles and Sacramento, the lights are still on and the rates have not doubled or tripled. As it happens, the people of Los Angeles and Sacramento own their own power plants. This glaringly obvious fact has for some reason escaped media attention, except in California.

The history of how utility ownership and regulation came about is crucial to this story. Wasserman quoted a 19th-century mayor of Cleveland, Tom Johnson, who said, "If we don't control the electric utilities, they will control us."

As is often the case with business and government regulation, it was the utilities themselves that asked for regulation, knowing full well that they could easily dominate state public utility commissions. "Regulation" evolved so that utilities were permitted to make 15 percent on invested capital -- a tidy sum.

This lasted until the early 1990s, when wholesale prices fell, tempting the utilities into deregulation. They dumped the stranded nuke costs on the ratepayers and made a promise in exchange -- no rate increases -- which they promptly broke when wholesale prices went up. Ask the people of San Diego.

The performance of the suppliers in this case -- Enron, Reliant, etc. -- is already the subject of public inquiry. But the California utility companies were meanwhile shipping the recovered nuke costs to their parent companies. ("We're still checking the DNA on those parents," said Wasserman.) And then, in a truly sublime move, the major California utility gave its executives huge bonuses just before it went into bankruptcy.

Wasserman's suggested solution is that Californians should simply get themselves out of the grid by setting up municipally owned power companies. In rural areas, this can be done by counties or electric co-ops. He believes that what held the old system together for so long was not government regulation, which was always blatantly subject to manipulation by the utilities (as anyone who has ever covered a PUC can tell you), but rather the tension between the for-profits and the municipals.

In the current issue of Business Week, the cover story is on Exxon Mobil's plan to take advantage of the "energy crisis." This would normally be funny, given that Exxon is in the oil business and (as most people outside the Oval Office are aware), the oil business has nothing to do with electricity. However, Exxon's acquisition of Mobil, which is rich in natural gas, unleashes a corporate behemoth of unprecedented size. Exxon also has a corporate culture that would give nightmares to "Chainsaw Al" Dunlap of business fame.

Here are some interesting facts from the Rocky Mountain Institute: The cheapest source of new electricity is efficiency; the next cheapest is burning soft coal, which is a gross polluter; and the next cheapest after that is wind power -- 2.5 cents per kilowatt-hour.