Strictly Business: Notes on Deregulating Electricity

As everyone reading this is surely aware by now, California's electric utility restructuring has gone badly awry. Unregulated wholesale prices for electricity have increased fourfold in the course of a year and over twelvefold on the spot market. In December 2000, power marketers priced gas-generated electricity that cost $250 a megawatt-hour to produce at $2,000 a megawatt-hour (the final negotiated price was $1,500). The state's Independent System Operator, which manages the "deregulated" power grid, accuses electric power generators and marketers of overcharging the state's power delivery companies by more than $6.2 billion between May 2000 and March 2001. Natural gas prices at the California border jumped to $30 per thousand cubic feet, six times the price elsewhere in the nation. With California's population accounting for 12 percent of the nation's and its $1.2 trillion gross state product accounting for 14 percent of America's GNP, this is hardly a provincial issue.

The effect of skyrocketing wholesale energy prices is potentially destructive. Householders and small businesses have been hit hard. The California State Legislature and state officials are investigating price gouging by natural gas suppliers. The old "regulated" utilities--Pacific Gas and Electric, Southern California Edison, and San Diego Gas and Electric--now the state's power distributors, have gone billions of dollars in debt buying wholesale power, and the largest, PG&E, recently filed for bankruptcy. The new Bush administration, which at first called California's situation a local problem, now uses the crisis to gird its own bottom-line-focused energy and environmental policies. As a White House economic advisor put it: "We need more refineries, we need more power plants, we need more pipelines."

There is no easy answer to California's deregulation debacle. It goes to the root of American values. It has revived the long-standing struggle between advocates of privately and publicly owned power systems, which utility regulation had subdued for almost eighty years. It is propelled by myth and ideology and by economic and political greed. It is perpetuated by legalism.

Energy always has driven the American economy, and energy systems are interwoven into people's lives with intricate complexity; production and distribution systems have enduringly etched into the earth's surface what geographer Martin Pasqualetti calls "landscapes of power." Pipelines, transmission lines, aqueducts, and highways have become so necessary and expected that daily life and ordinary nature is unimaginable without them. Energy systems are quite simply "second nature." And therein lies a large part of the present problem. Economists, businesspeople, and some politicians think of energy as a commodity to be generated in abundance in a low-cost deregulated market, but the average American consumer sees electricity and natural gas, as the novelist D. J. Waldie puts it, "as something real, like air and sunlight." People know intellectually that technology and technological systems are the tools with which they interact with the nonhuman world and that such interactions can be quite rational, but once technological landscapes are in place people fold them so completely into their psyches and day-to-day lives that their interactions with those very technological landscapes confound theoretically rational market behavior. Technology always has been key to the interplay between human beings and the natural environment, but in modern societies the technology junction between people and nature is enormously complex. When it comes to the place of energy systems in this relationship, it is, to borrow a phrase from William Butler Yeats, hard to "know the dancer from the dance."

The story of America's electrification is well known. Over the first half of the twentieth century, regional electric power empires emerged. Advances in generating and transmission technologies resulted in a steady decline in wholesale and retail electricity prices, which dropped from $1.56 to 9¢ a kilowatt-hour over sixty years. Utilities exploited this situation, promoting electricity consumption in order to justify building new, more productive power...