This article is from Cal-Tax Digest, published
by the California Taxpayers' Association.
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Get State Government Out of the Energy-Buying Business
By Larry McCarthy

Unless the Legislature approves two key energy-related issues before the scheduled September 14 adjournment, California will have taken a major step towards establishing a government-run, statewide utility system. Given the complexity and politically charged nature of the electricity market quagmire, some openly advocate a state-run system as a legitimate solution.

However, a state-run system is hardly in the best long-term interest of electricity consumers, state taxpayers or California’s economy. One need only look at other state-operated systems (departments dealing with transportation, motor vehicle registration, and veteran affairs come to mind) to imagine the operations of a state energy authority.

The state of California’s involvement in the business of buying electricity has already been a nasty experience for taxpayers. As numerous press accounts demonstrate, state government was unprepared to engage in this marketplace. Yet that is exactly what state officials have been forced to do, and could be forced to do in the indefinite future, because California’s utilities lost their investment-grade credit status and the Legislature has failed to take action.

With the state in the energy-buying business, taxpayers are at great risk. The state of California has already spent billions of public dollars to underwrite the cost of electric energy for homes and businesses, and until bonds are sold, taxpayers, public schools and transportation programs remain at great risk. In addition to the billions of tax dollars fronted for electricity purchases, no one has yet calculated the economic impact of the near paralysis in state government that has delayed much needed attention and resources to priority issues of California residents.

When the Legislature returns, it will have one more opportunity to effectively engage the energy crisis on behalf of taxpayers, small business, wage earners, retirees and all who are a part of our economy. Members of the Legislature must return from the summer recess with the single-minded focus on two issues:

Getting state government out of the electricity buying business. There is only one way to accomplish this goal: Pass legislation to return Southern California Edison to investment-grade status. Ideally, this legislation will serve as a model to expeditiously bring PG&E to financial health as well. Only then will the utilities be able to resume the hard job of buying and selling power in the most economically efficient way. The solvency of investor-owned utilities is critical to the delivery of reliable and affordable energy in California. This is the best strategy to assure direct access for large industrial energy consumers so they can chose their energy supplier or generate it themselves. State government procurement of electric energy on a long-term or permanent basis will have damaging consequences for taxpayers and the economy.

Equitably allocate costs. The Legislature must allocate responsibility for energy costs equitably while sheltering residents of the state who are truly in need. For more than a year, the California energy crisis has been aggravated by the failure of policy-makers to allow the commodity cost of electricity to flow through to business and residential consumers. Attempting at this point to load all undercollection costs on business in order to insulate most residential consumers from the realities of the California energy market discourages conservation and jeopardizes the fiscal health of the state. Economic investment and jobs in California depend on an equitable allocation of costs. Residential energy consumers have demonstrated their ability to respond to higher energy costs by managing utilization.

Reliable and affordable energy is critical to California’s economic future. It is necessary to sustain the current workforce and attract additional investment. Failure to meet this state’s electric energy needs as soon as possible will cost California jobs and worsen the already-slowing economy as businesses move to other, more capable regions of the country.

The California Legislature must act now to restore utility companies to solvency and equitable allocate energy cost to avoid further destabilizing effect this ongoing crisis is having on our economy.

Larry McCarthy
is president of the California Taxpayers’ Association