December 17, 2004

Commentary

Oh say can you ICC?

By Larry Stirling

Our hometown heroes, Sempra Utilities, have moved to eject California Public Utilities Commissioner Loretta Lynch from the ongoing investigation of gas-price manipulations during the energy crisis.

She illegally invited a news affiliate to tape record private conversations on important issues.

Whatever Sempra did during the energy crisis last year should be understood in the context of the horrendously stupid public policy under which it was operating.

For a time, the CPUC authorized Sempra to be paid more for its nuclear power than it was allowed to charge customers, creating an entirely new accounting category called the “stranded revenue.”

At the same time, Sempra was required by law to pay more for other energy supplies than it was allowed to charge customers, creating a millstone of debt.

Meanwhile, the federal government was selling our Hoover Dam hydropower to Los Angeles for a fraction of the cost of other power, and Los Angeles was reselling our own power to us at a huge mark up.

That led the director of the Los Angeles Department of Water and Power to say: “Even a blind pig could make money in this market.”

Members of the Legislature never produced an erg of energy and were clueless, even after the debacle, as to what they had done to either the energy industry or us. Of course, they did not care. All they wanted to do was to save their own hides from being tacked to the side of the political barn.

The Federal Energy Regulatory Commission belatedly put an end to “Power Exchange” (PX) purchasing scheme. That allowed some, but not enough, sanity back in the market.

It is a total mystery to me why energy production and distribution in California is subject to the complete incompetence of state legislators and their bureaucratic minions at the CPUC and the State Energy Commission.

The United States Constitution contains the Interstate Commerce Clause (ICC) that wisely provides that states shall not “burden” interstate commerce.

It does so because of the disastrous arrangement in our first constitution, the Articles of Confederation. Under that constitution, petty self-serving bureaucracies in each former colony set up road blocks to trade; attempted to tax anyone who come through “their” state; and thereby crushed the national economy.

That is exactly what happens now under state controls of energy production and distribution.

The good people in British Columbia have a surplus of falling water in the spring and summer. Their energy needs peak during the winter. Our energy needs peak in the summer.

We are a perfect symbiotic match for them. They have it when we need it and vice versa.

An erg of energy can zip to and from British Columbia in a nanosecond.

But to do so, it has to cross three state lines and an international boundary.

In addition, such power must travel through the transmission networks of the Bonneville Power Authority, which hates the idea that we can get cheaper power from Canada.

The Interstate Commerce Commission should simply pre-empt all these ill-conceived, state-level regulators. We require a national energy plan and an international market. The present arrangement is not working for us.

Understanding CPUC proposals is a mind-numbing exercise and totally foreign to us in the public.

But, here are some principles that you can apply to evaluate the schemes coming out of our seriously flawed state agencies:

• Pre-empt state regulation. Such pre-emption is a constitutional mandate and is vastly superior public policy.

• Adopt the Federal Energy Commission’s Wholesale Market Platform, which addresses present and future energy needs.

• Promote the establishment of interstate transmission capacity and coordination through interstate voluntary cooperative organizations.

• Apply the burdens of regulation, such as generating capacity requirements, fairly to all producers and distributors.

• Stop playing political favorites based on the quality of the companies’ lobbying and the extent of their political contributions, which are nothing more than legalized bribes.

• Require competitive bidding for various energy contracts. Oh, and take the low bid, not the high bid as they did under the PX.

• Promote customer choice.

• Promote private investment in energy production. Why should the public take all the financial risk for poor management and regulation by state politicians?

These policies will put us on the road to energy dependability and reasonable prices.

Stirling, a former Army officer, budget analyst and director of finance, represented the people of San Diego on the City Council and in the State Assembly and Senate. He retired as a Superior Court judge and now practices law and governmental relations in San Diego. Commentary first appeared in The Daily Transcript, Nov. 29, 2004.

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