The problem with government-protected utility monopolies

Just a few months back it was noted that California was suffering through a resurgence of medieval diseases. Another plague of premodern times now threatens to visit the state this summer: darkness.

Bloomberg News reported that “California may go dark this summer.”

Pacific Gas & Electric plans to cut power when the wind blows hard during the upcoming wildfire season, which “could plunge millions of residents into darkness.”

The utility is skittish due to last fall’s Camp Fire in Northern California, which killed 85 civilians, injured several firefighters, and scorched more than 150,000 acres and nearly 15,000 homes. The state determined the wildfire “was caused by electrical transmission lines owned and operated by” PG&E, which faces $30 billion in liabilities, plus possible fines and penalties. It filed for bankruptcy in January.

PG&E’s plan, which includes clearing more trees that could fall power lines, and better management of vegetation near equipment that easily could catch fire, has been approved by the Public Utilities Commission. It also allows the utility to more frequently shut off power when fire danger is high.

A truly free market system would likely have already corrected the problems without government involvement. It’s a giant leap to get there from where we are now. But California should at least follow the progress of Japan’s deregulatory agenda and consider pursuing reform based on that model.

The Camp Fire was the deadliest, most destructive wildfire in California history. No one wants to go through another. Maybe temporary blackouts, such as one that virtually shut down the wine-country town of Calistoga last fall, are necessary to prevent or minimize the loss of life and property from wildfires. But this is California, often thought of as the most modern state in the country, maybe the most advanced place on Earth.

The Camp Fire was not the inevitable outcome of modern convenience gone wild but the result of California’s antiquated way of delivering that service. The state’s regulatory regime awards government-protected utility monopolies and sets prices in a Bulgarian-esque system.

According to Pacific Research Institute senior fellow Wayne Winegarden, no state outside of New York has a more regulated energy sector than California. It scores near bottom in several regulatory categories even though electricity was “deregulated” years ago. Utilities are managed more like government bureaucracies than private enterprises that must satisfy customers and make sound decisions to stay in business. Risks are not socialized in a fully free market system. Instead private providers are held solely liable, creating a strong incentive to minimize risk.

A year ago, there was a growing concern, said the San Francisco Chronicle, that “the state’s system for producing, selling and distributing energy is undergoing profound changes,” citing a PUC report that “argues that the state has no clear idea of how to manage a market transformation that is well under way.”

Meanwhile, a new state law requires all retail electricity to be generated by renewable sources by 2045. The fossil fuels that stoked California’s growth and progress will be retired under legislation signed by former Gov. Jerry Brown, and replaced by sources from a previous era, such as windmills and the sun, both of which have a long way to go before they can supply energy adequate to meet demand.  A sensible legislative body would repeal this legislation. A more sensible one would have never passed it.

When policymakers demand a particular outcome, they might believe the power of their words will ensure it’s done. But when encountering the real world, in this case renewable sources supplanting conventional fuels, their words have no meaning.

This reality is demonstrated by a story from Los Angeles. The state ordered 10 natural gas-fired units at three plants be shut down for environmental reasons. Consultants hired to study whether the plants “could be replaced with cleaner alternatives” told the Department of Water and Power that Los Angeles should rebuild the generating units targeted for closure.

“The utility’s staff agrees, saying that batteries charged with solar or wind power aren’t yet cheap or reliable enough to replace the gas plants, which are critical to keeping the lights on,” the Los Angeles Times reported in December, also noting at the time that “there are no viable alternatives in the short term, at least without increasing the risk of power outages among the 4 million people.”

Of course the city ignored the sound advice.

Meanwhile, Los Angeles is being nationally embarrassed by an accumulation of street trash that recalls a pre-sanitation era. Another medieval problem in the state that believes itself to be the model of progress.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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