Pull the Plug on Electricity Re-Regulation
The California mistake could be repeated at the federal level.


Deregulation has been one of the great public-policy success stories over the past quarter century. Consumers have been the big winners through lower prices and more choices. The lifting of federal airline ticket price regulations in the late 1970s ushered in the modern era of affordable discount airline travel. Tickets for flying between major cities can be bought today at about half the cost of what airlines charged 20 years ago. Similarly, Ronald Reagan’s first official act as president was the deregulation of the oil industry in 1981. With a stroke of a pen the energy crisis and the gasoline lines of the 1970s vanished. As a consequence of ending price controls for oil, the inflation-adjusted price to fill up your gas tank is far lower today than it was in the 1970s.

But we’ve learned another lesson about deregulation in recent times. When Congress or state lawmakers botch the plan — when they engage in phony deregulation schemes — things can go catastrophically wrong.

That’s precisely what happened in California during the infamous electricity blackouts and skyrocketing prices last year. During the worst stage of the electric power shortage, California homeowners and businesses had to ration their electricity use, dim the lights, and turn off their air conditioners. A basic service that we as Americans take completely for granted — the cheap and uninterrupted access to electric power for light, for heat, for running our computers, powering our hair dryers and dishwashers, and accessing the internet — was suddenly a scarce commodity. Electric utility prices skyrocketed because the California legislature implemented a tragically flawed electric-power restructuring plan.

To fix the mess California’s taxpayers got stuck with a multi-billion dollar bail-out bill that has made the most alarming state fiscal-debt crisis in history even worse. Oops!

Congress will soon vote on a new electricity re-regulation scheme that could duplicate the anti-consumer mess we just witnessed in Sacramento. Uncle Sam’s energy regulators want to establish a new Rubik’s Cube plan for electricity markets, which would impose vast new federal control over state and local electric utilities. The plan hopes to lower prices and expand efficiency of the national electricity market by requiring private power-generating companies across the country to come under the authority of newly created mega-Regional Transmission Organizations.

Washington regulators at the Federal Energy Regulatory Commission (FERC) who contrived this new federal power grab — no pun intended — falsely label their plan a form of pro-competition deregulation. That’s a stretch, to say the least.

Deregulation should not require 603 pages of new rules. It should not cost $750 million to implement. And if this is deregulation, why does the flow chart of this organizational redesign make the 1993 Hillary Clinton socialized medicine plan seem sane and comprehensible by comparison.

The new scheme also appears to create clearly definable winners and losers — and it should be no surprise that the winners are the politically powerful states. Places like New Mexico, Arizona, Colorado, Idaho, and many southern states are expected to see utility prices rise under this beggar-thy-neighbor scheme, while more of their power gets exported to the major power-using centers like California, New York, and Chicago.

And what can’t yet be determined is just what policy problem Congress is here trying to solve. For years and years electricity prices have been falling in the U.S. This is precisely what the Department of Energy conceded when it recently noted that over the past century, “the electric power industry has generally been marked by substantial growth in capacity and generation and dramatic declines in price.” A Cato Institute report finds that the average household pays less than one-third in wage-adjusted prices for electricity today as did the equivalent household in 1950.

Supporters of the new federalization idea hope that it will reduce utility costs by $1 billion annually. But Thomas Lenard, the respected energy analyst at the Progress and Freedom Foundation, notes that the overall production capacity of electricity could easily fall under this new plan because of the added risk element to new investment from this new untested regulatory regime. That would mean higher, not lower utility prices.

Lenard’s warning is worth repeating and demands the upright attention of Congress: “If FERC continues on its current path, the California electricity mistake will be repeated at the federal level, and the next electricity crisis may affect the entire nation.” That would chase Republicans out of office en masse.

Congress should reject the new federal re-regulation of electricity markets. Yes, the electricity markets should be fully deregulated — but deregulated the right way. That would mean precisely the opposite of what Congress is considering and what California tripped over in recent months. Deregulation means that the federal regulatory apparatus is dismantled, not empowered. As Reagan proved, true deregulation doesn’t require 600 pages of new law; it just requires a stroke of the pen.

Stephen Moore is president of the Club for Growth.


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