DATE: 5/30/01
 
BACKGROUND: Democrats have launched a campaign attacking eight western Republican Members of Congress for, at least until now, refusing to support wholesale price controls for electricity in the West, particularly California. The Republicans are Doug Ose, Steve Horn and Gary Miller of California; Jennifer Dunn and George Nethercutt of Washington; Heather Wilson and Joe Skeen of New Mexico as well as Tom Tancredero of Colorado. They are considering adding Dennis Rehberg of Montana to their target list.
 
TEN SECOND RESPONSE: Price controls would be the straw that breaks the back of California's energy crisis, quickly leading to greater shortages and, eventually, higher prices for electricity.

THIRTY SECOND RESPONSE: Price controls simply do not work and invariably lead to greater shortages of supply and higher prices. When Richard Nixon instituted price controls in the 70s (the only such action ever taken in peacetime) he touched off severe shortages followed by a decade or the highest inflation in the nation's history - inflation that ran through the Ford and Carter administrations, contributing to an early end to their presidencies. Allen Greenspan has been successfully fighting destructive inflation for years but price controls would surely undo all his efforts.

DISCUSSION: Price controls on electricity would do several things - all bad. First, they would not make available one new watt of electricity. In fact, they could well induce producers to sell their power elsewhere. Secondly, they discourage conservation by companies and individuals by keeping prices lower than they would otherwise be. And, in the long run, they inhibit investment in facilities to generate electricity because investors shy away from heavily government-controlled industries. This, in turn leads to long-term shortages and even higher prices, paid either directly by consumers or indirectly through tax subsidies.  

At the heart of California's electricity crisis is the fact that they have not built new generating or transmission capacity in 10 years - while demand soared - primarily due to the burdens of New Source Review as practiced by the previous Democratic administration. Protests and lawsuits by environmental organizations have been another contributing factor. 

Tom Knudsen, writing in the May 16 Sacramento Bee, outlines how one power company, Duke Energy, had to pay what amounted to "environmental bribes" to get four environmental groups to sign an agreement that they would not sue to stop the expansion of their Moss Landing Power plant. The $1 million payment to these groups was part of a $12 million package the company paid to a variety of civil, government and environmental groups to buy their cooperation with the needed expansion. The complete story should be available at http://www.sacbee.com and you can reach Mr. Knudsen, who has done an extensive series on the workings of environmental groups, at [email protected].

As for New Source Review, which has changed 26 times in the last four years, it is complex, uncertain and capricious - and more stringently practiced in California than anywhere else in the nation. To see a list of the hundreds of varying interpretations of New Source Review, you can go to: http://www.epa.gov/region07/programs/artd/air/nsr/nsrindex.pdf .

 
by Tom Randall, Director of Environmental and Regulatory Affairs

Contact the author at: 773-857-5086 or [email protected]
The National Center for Public Policy Research, Chicago office
3712 North Broadway - PMB 279
Chicago, IL 60613