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Jewish World Review April 13, 2001/ 20 Nissan, 5761

Marianne M. Jennings

Marianne M. Jennings
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Consumer Reports

The continuing mistake of underpricing electricity -- THE 46% plus increases in electric rates in California are decades late. California has done for years, long before deregulation was ever an issue, what I did when I served as an Arizona Corporation Commissioner, the body responsible for setting utility rates here: I under priced electricity so consumers had lower rates. Real prices catch up eventually. Ironic that just a few months ago Ed Begley Jr. was a California cult hero for demanding mandatory electric cars. Be careful what you wish for. E-Z-Bake ovens now crank out Spago Alfredo. California screaming will come to each state in time; hence I confess my regulatory sins.

Public utilities have long operated on grocery store margins with staggering capital investment. Also, commercial users cross-subsidize residential users, giving them artificially low rates. Everyone, from Silicon Valley nerds to home latteites, bought and behaved as if electricity costs were low and would remain so.

Further exacerbating the under pricing problem is stagnant supply. Because of marginal rates of return, environmental backlash, grief from siting committees, irrational homeowners with the NIMBY syndrome (Not in my backyard) and general hostility toward rate increases, utilities have not been building new capacity or putting dollars into R & D for alternative generation. Aging plants mean shortages will grow more acute.

California's deregulation plan was hare-brained. Deregulation in a market with insufficient supply and under pricing was daft. But, why the under pricing for so long? Rationalizations are always complex but here boil down to the universal human trait of a strong desire to avoid whiners.

My tenure as a commissioner required a decision in the first rate case for the Palo Verde nuclear plant, a facility that was completed during the height of both cost overruns in that industry and anti-nuclear fervor. No one could have anticipated then that Palo Verde would become the largest nuclear facility in the United States and one of the world's top three performing nuclear plants. The environment for pro-nuclear regulators such as I was about as friendly as a bonfire reception by loggers for spotted owls.

During that rate case Arizona Public Service (APS) (on whose board I served from 1987-2000) established that even with Palo Verde capacity it would be at dangerously low margins by the year 2000 (and they are). The day will come when Arizonans, who damned the plant as a California resource they were paying for (several California utilities do own a portion of the plant), will regret their forced cancellation of Units IV and V. Palo Verde capacity was necessary and the cost overruns were the result of NRC zeal, not mismanagement. Yet I did not place the full cost of the plant in rates.

I failed to do so despite better judgment because when I proposed such, the citizenry began a recall. Katherine Harris has nothing on me in terms of cruel and unusual media treatment. There were the hues and cries of "rate shock," shareholders getting wealthy from ratepayers, and "pro-business" regulators.

Emotions ran high and hell hath no fury like ratepayers with hot tubs who don't want to pay a dime more for the kilowatts to run them. The inevitability of the laws of supply and demand are lost on those who parade the elderly before you, complete with can openers and budgets. I pledged to work and did work to raise money to aid the working poor and the elderly with their utility bills, but warned that the consequences for not paying the actual costs of electricity would be dire. I was booted out of one Rotary meeting for this heresy.

California is what under pricing hath wrought. Even a good deregulation plan can't make up for the cold, as it were, realities of a flawed market. With no new meaningful capacity for decades, utilities swapped power, hoped for rain and cheap hydropower, and massaged cash flows. The alleged fat in the capital and operating budgets of utilities that California consumer groups decry is long gone. California has teetering electric giants that are victims of those who demand pristine plant-free views from their homes, no nukes, and air conditioning to go with it all.

The only long-term solution to the California crisis, Arizona's impending one, and other states on the wires is a free market in which consumers pay the real cost of their electrons. I hid that cost out of expediency. I blacked out, as it were, on basic economics. My hope in this confession is that policy makers, regulators, politicians and environmentalists don't succumb once again. Rate shock, when consumers finally pay true costs, is inevitable. But Californians should welcome any electric shock - it would mean the watts flow again.

JWR contributor Marianne M. Jennings is a professor of legal and ethical studies at Arizona State University. Send your comments by clicking here.


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12/06/00: The company we keep: Lawyers and elections
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04/05/00: Endowing the Hooters Chair for Literature Appreciation
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06/30/99: That intellectually embarrassing Second Amendment
06/24/99: Patricia Ireland eat your heart out --- but check out the recipe in 'women's mags' first
06/22/99: Dems and the Creator coup
06/17/99: True courage is more than just admitting troubles

© 2000, Marianne M. Jennings