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
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
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
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
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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