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As most Americans know by now, California is in the throes of a power crisis. Sky-high prices and rolling blackouts have made California’s once-roaring high-tech economy seem like a third-world basket case.
There is an old saying that no one is totally useless, they can always serve as a bad example. Failing to learn from California’s bad example, a slew of western governors, facing energy challenges of their own, seem eager to import chaos into their own states.
During the recent meeting of the Western Governor’s Association, a bi-partisan group of eight governors — three Democrats and five Republicans — argued in favor of price controls. For the time being, the Bush administration is refusing to play along with this strategy. Also taking center stage at the meeting were two other policies, reliance on renewables, and increased conservation, the latter being the more sensible of the two.
However, price caps, by shielding consumers from the true cost of energy, also remove any incentive to conserve or use energy more efficiently. California’s disastrous experience with price caps — just part of a ham-fisted attempt to restructure its energy market — along with the failure of price caps in the 1970s ought to dissuade any policy maker from flirting with this idea.
Whether at the wholesale or retail level, price caps will not bring a single new kilowatt of power into the region. In fact, by prohibiting producers from charging market-clearing rates for energy, price caps will discourage additional supplies and hinder the development of new power plants.
Increased conservation, while certainly a good idea, can only take us so far in addressing the energy shortages plaguing the West. First, some governors want price caps, which as just mentioned, remove any incentive to conserve. Second, conservation, though it is the right thing to do, simply cannot bridge the gulf between supply and demand that has been created by the failure to build new power plants.
Reliance on renewables is simply a false hope. Despite progress over the past two decades, renewables are simply not capable of meeting the energy needs of the average American family. Someday they undoubtedly will be, but that day is still a long way down the road. In fact, California’s failed efforts to foster green energy at the expense of traditional power are partly to blame for the current mess.
Even more farcical are environmental extremists’ calls for switching to “non-hydro” green energy. Dams and hydropower are essential components of the West’s energy supply, without which the situation would be far worse than it is already.
Price caps, conservation, and green energy fail to address the central problem, the lack of reliable supplies from traditional sources such as gas, coal, and even nuclear power. Even Sen. Chuck Schumer (D-NY) recently conceded that “the correct lesson is that we don't have enough power plants.” This ought to be a wake up call for everyone.
If western governors genuinely wish to solve the region’s power woes, instead of dodging short-term political fallout, here are some modest suggestions.
First, streamline permitting regulations so new generating facilities can increase capacity. California, for example, has not built a major new power plant in over a decade. Second, overly-stringent air quality regulations that prevent power plants from operating at full capacity should be eased. Third, conservation should be encouraged through realistic pricing — in other words real deregulation — rather than by handing out subsidies that mask energy’s true costs. Fourth, policymakers must be honest about the current limited potential of “green energy.” Finally, the notion of breaching dams must be abandoned unconditionally.
Politics aside, policies that address the fundamental issue of supply will prevent California’s troubles from spilling over into other Western states and dragging the country toward recession. Unless elected officials are willing to abandon short-term gimmicks and take a realistic approach to the problem, we may be headed for a long, dark summer.