TUESDAY January 16, 2001

William Safire - Special
Tuesday, January 16, 2001
Los Angeles

Despite liberals' protests, capitalism didn't cause California's energy crisis

In the past decade, California has become the most Democratic state in the nation. It has a Democratic governor, two liberal Democratic senators, and both houses of its Legislature are firmly in Democratic hands. Not for nothing is it called the Left Coast.

Then why, Californians now ask themselves, is their state the most troubled in the nation? Bad enough that Hollywood's writers are preparing to strike; worse that speculators in Silicon Valley start-ups are watching their stack of chips dwindle; worst of all is the unforeseen electricity shock that is making the state's hair stand on end.

The price of electricity is soaring, yet the big electric utilities are threatened by bankruptcy. Who's to blame?

The chosen villain: deregulation. As soon as cruel market forces were allowed to work, cry liberal voices, those heartless capitalists drove up prices. Bring back the cool, calm days of inefficient monopolies under government control.

But in fact, the first villain is botched deregulation --- not as bad as in Russia, but 'tis enough, 'twill do.

California's politicians deregulated halfway, which is the worst way: Wholesale prices were freed from controls, but retail prices were not. Consumers remained seemingly protected, but the utility companies --- which foolishly thought wholesale prices would go down forever --- were enabled to buy on the spot market. Legislators, believing they were protecting consumers, forbade long-term contracts, which are hedges against sudden price fluctuations.

This halfway dereg ran smack into the inexorable law of supply and demand. The good times of the '90s sharply increased demand for electric power. But all sorts of obstacles were put in the way of increasing the supply of that power.

Result: Upward pressure on prices, calls for rationing, utilities going broke, government intervention that frightens off private investment, and the danger of an economic Big One in the state responsible for 13 percent of the nation's product.

The unspoken issue in this bastion of liberalism is ''NIMBY'' --- the real villain in the current supply crisis, that says ''not in my back yard'' to power plants. In San Jose, epicenter of the computer industry's drain on electric power, New Economy voters recently rejected a new power facility that offended their aesthetic sensibilities. Red tape and purple rhetoric are the reasons no major power station has been built in California in 10 years.

Contrary to popular belief, electricity does not come from the socket in the wall. The steady flow of low-cost power comes from factories that convert energy from other sources into the stuff that makes toasters pop, air-conditioners wheeze and computers beep. Unless energy is dug up and produced in real places and transmitted through real lines, nothing comes out of the wall.

Environmentalists recoil in horror at suggestions of nuclear power, now a safe and clean source of electricity, or the use of cleaned-up coal to lower the price of natural gas that generates it. Reducing pollution sensibly is laudable, but clean-air extremists become local heroes without telling constituents the danger of loss of Intel jobs and cheap electricity's household convenience.

The answer is not re-regulation, nor more halfwayism, nor federal bailout. When Gov. Gray Davis of California raced to Washington to ask for wholesale price controls, he found Bill Clinton too busy carving up Jerusalem to mediate; Clinton-appointed federal energy bureaucrats offer only palliatives, with photo op to follow.

Davis' panicked proposal to build state-owned plants (in Nevada? On the moon?) and his threat to seize the assets of ''price gougers'' may please dot-communists. But such populist pap destroys private incentive to invest and is hardly the path for a presidential hopeful professing to be a centrist.

After short-term action to alleviate hardship caused by past and present political- industrial blindness, our biggest state should avoid regressing into more stultifying regulation and instead get out of the way of stimulating supply.

Why do I sound like a reformed drunk on this? Because I wrote the Nixon speech imposing wage and price controls. They never work in peacetime. Never.

William Safire's column appears in the Atlanta Journal-Constitution on Tuesdays

He is Washington columnist for The New York Times

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