June 20, 2001
PREPARED STATEMENT OF SENATOR FRED THOMPSON
HEARING ON THE ROLE OF THE
FEDERAL ENERGY REGULATORY COMMISSION
ASSOCIATED WITH THE RESTRUCTURING OF ENERGY INDUSTRIES
California will suffer rolling blackouts this summer
primarily because of an inadequate supply of electrical power to
meet demand. When California’s deregulation law was enacted 5
years ago, things looked much brighter. Back then, supply
exceeded demand. Applications to build new plants spiked up
after the deregulation law was signed, after the law took effect
in 1998, and again after the defeat of Proposition 9, which
would have repealed deregulation.
To be fair, California had some bad luck, including a drought
that reduced hydroelectric power from the Northwest last winter,
coupled with a severe cold spell, as well as a natural gas
shortage. But it appears that Governor Davis’ failure to act
in the face of clear warnings allowed the problem to become a
crisis. In 1998, for example, a report to the State warned of
energy shortages occurring as early as 2000. As California grew
through the high-tech boom, the State failed to ensure that
supply grew with rapidly expanding demand. When price spikes
occurred in 2000, Governor Davis’ solution was a wholesale
rate cap, all but ensuring an insufficient electricity supply.
At last week’s hearing, esteemed economists -- even those
supporting a temporary wholesale price cap -- called California’s
cap on retail electricity prices "ridiculous." The
State also failed to suspend the prohibition on long-term
contracts. And the State failed to truncate the cumbersome
siting process that has discouraged new plants. All of these
actions could have been taken a year ago or even earlier.
Recently, California has taken such steps begrudgingly, but
it is too little, too late. Sadly, the costs of inaction are
inescapable. Some experts have said that if the Governor had
raised retail rates earlier at just half of their recent
40% hike, he could have mitigated this impending crisis. Others
have said that if the State had allowed utilities to enter into
long-term contracts last year, they could have gotten prices
almost one-third as high as the State recently got. If
the State had abridged its siting process, more power would be
on-line today. All of this could have prevented the impending
blackouts.
Instead of making the hard choices needed to solve the
problem, Governor Davis seems to prefer the blame game. He has
blamed everyone from the new Administration, to federal
regulators, to the former governor, to a public utility that he
bankrupted, and so-called corporate "pirates" -- even
though municipally owned utilities charged higher prices. He
hired political spin masters, costing California’s taxpayers
$30,000 per month. This blame game does a great disservice to
Californians and to the nation by diverting attention from the
causes of California’s energy supply crisis.
This failure to act has wasted literally billions of taxpayer
dollars. It bankrupted Pacific Gas & Electric, the State’s
largest utility, once worth $22 billion. It has jeopardized
spending for California’s schools, parks, and other pressing
needs. It poses a serious risk to the environment and public
health. Because the State is now hard-pressed to obtain more
power, the Governor has rolled back the State’s environmental
protections. By some accounts, boilers and turbines have
released more than 2,045 tons of pollutants so far -- twice as
much as they had by this time last year. It also appears that
emergency diesel generators may be required, which would throw
up particulate emissions into the air -- emissions which the EPA
has said can cause cancer.
On Monday, the Federal Energy Regulatory Commission took
action to extend its April order to mitigate wholesale
electricity prices in the West. FERC’s actions can help, but
the only lasting solutions to this energy shortage have to come
from California’s leaders. The ultimate questions posed today
are these: Will California return to the failed regulatory
approaches of the 1970s that could lead to even greater
blackouts, or will it pursue more promising market approaches
that have made America the envy the world? Will California’s
leaders take responsibility for the tough choices that will make
the State’s future bright once again, or will they continue to
play a blame game that may be politically expedient in the short
run, but doubtlessly will be harmful to the State of California?
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