Tom McClintock




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Pricing Electricity
Principles of a free society missing in California

By Senator Tom McClintock

6/10/2001

 

In a free society, California's electricity problems would have corrected themselves long ago. A shortage develops, electricity becomes relatively scarce, and prices rise. As prices rise, consumers reduce their demand while producers develop more generation. Consumption declines, production increases, prices fall. The result: low prices and abundant electricity.

In California's society, a simple shortage becomes catastrophic. As prices rise, the government begins heavily subsidizing electricity purchases. This drives prices still higher while hiding the reality of those prices from consumers.

 Meanwhile, government officials threaten producers with the seizure of their assets and imprisonment if they set foot in California. The result: consumers will see surcharges tacked onto their power bills and taxes for years to come to pay for the subsidies, while investors who planned to come to California to build more power plants decide to invest elsewhere.

There is a very simple truth that California's governor just can't seem to grasp: governments can hide prices, but they cannot set them. When Gov. Davis buys power for 50-cents per kilowatt-hour and sells it back to consumers for 7-cents, consumers haven't been spared the other 43-cents. It simply ends up on their tax bill. Already, the state's treasury has lost more than $8 billion (about $950 for an average family of four) in this manner.

To fill this growing hole in his budget, Davis approved the biggest bond measure in history to be repaid with crushing surcharges on consumers' future electricity bills, averaging about $2,000 per ratepayer.

To keep consumers from revolting over those surcharges, the administration is now struggling with how to disguise them. It is doing so by tinkering with baseline prices. Different "baselines" for usage will be adjusted to determine who has been virtuously frugal and should be rewarded with subsidies and who has been profligate and should be punished with sky-high rates.

What makes this fundamentally unjust is that the question of "fairness" depends on an infinite combination of factors that government cannot foresee. Is it "fair" for the family with five children to be allotted the same baseline electricity as the bachelor next door? Of course not.

But suppose the bachelor next door is 90 years old and requires around-the-clock air conditioning? Or suppose the bachelor economically works from his house while the family next door consumes gobs of electricity at work in several different locations?

It is utterly impossible for government to account for these infinite variations in personal circumstances and any preferential pricing scheme is bound to create countless injustices.

There are four principles that government in a free society should instill into the pricing structure. They are the four principles that California's government has violated.

The first is freedom of choice. In 1996, consumers won the right to choose the provider that offers them the best deal for electricity. Although the state's electricity supply collapsed before those choices materialized, the fact remains that the ultimate defense against price gouging is the ability to take your business elsewhere. Gov. Davis and the legislature took that right away from consumers.

The second is equity. When the price of electricity falls, so should our rates. But they won't, because of billions of dollars in surcharges Gov. Davis is adding to future electricity bills.

The third is the truth. Consumers deserve to know the price they're paying for electricity when they buy it. This is the only way they can decide how much they need and what they're willing to pay for it. The Governor's policies have denied them this information. He has instead bought power at absurd prices and stuck taxpayers and consumers with the bills, without those consumers ever having the chance to say, "No thank you, the price is too high, I'll do without."

The fourth is justice. In a just society, a consumer would pay only for his or her own consumption -- no more and no less. When politicians intervene, the politically favored always end up benefiting at the expense of the politically weak. It shouldn't surprise anyone that family electricity bills have been subsidizing businesses for years.

But these are the principles of a free society. Now, back to California. 

Senator Tom McClintock represents the 19th Senate District in the California Legislature. His website address is www.sen.ca.gov/mcclintock.

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