Magazine article Reason

Phony Deregulation

Magazine article Reason

Phony Deregulation

Article excerpt

Ralph Nader recently characterized San Diego as me "canary in the coal mine" of electricity deregulation, arguing that the state essentially sold out the public's right to a reliable supply of electricity when it tried to open the door to competition. He misplaced the blame. San Diego's skyrocketing electricity rates are the result of political horse-trading and compromise, not free markets.

The 1996 law at the center of the debate is not some radical rewriting of the rule books. California didn't deregulate its electricity market; it "restructured" it. While the generation of electricity was partly deregulated, additional regulations and controls were placed on the rest of the system. The result violates most basic principles of deregulation: It discourages entry into the market, it restricts expansion of capacity, and it sustains the old systems and rules that prevent competition.

Witnessing the legislative battles and compromises, most potential competitors outside California adopted a wait-and-see approach. The most recent attempts to freeze electricity rates at pre-restructuring levels have only confirmed their worst fears--it isn't a deregulated market at all, just some hybrid that no one knows how to navigate.

Under real deregulation, higher prices would spur more competition. But under California's system, political hurdles ensure that no out-of-state relief can be expected anytime soon.

So what about new power supplies in-state? Many pundits complain that no new capacity has come online since restructuring, but they don't bother to ask why. First, the restructuring law forced California's utilities to get out of power generation and sell their power plants--so they aren't investing in new ones. Several groups have applied to build new generation plants, some of them immediately after the law was passed. …

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