California Power Reregulation Working Relatively Well

I keep watching the news and seeing a strange claim made over and over again: since the wholesale price of electricity increased in California, electricity deregulation is a failure. Huh? Although what California did was reregulate rather than deregulate its power utilities, the system seems to be working relatively well.

Anytime a commodity is in short supply, as electricty is in California, its price should spike. This is a signal to the market that more of that commodity is demanded by consumers and capital investment should shift to producing that commodity — in this case electricity.

The real problem that California has is that the state has created a number of regulatory hurdles that make it very difficult for companies to enter to build new power plants. If you had a pile of money and wanted to get into the business of generating electricity, California’s the last place you’d want to build.

Here’s a prime example of the sort of nonsense you’ll face in California. A few years ago Calpine Corporation wanted to build a geothermal power plant at Medicine Lake. Rather than burn coal or use nuclear power, the geothermal plant would have pumped water from the lake which would in turn run turbines and generate about 50 megawatts. Environmentalists still showed up to protest, arguing that the huge plumes of steam — which are the main byproduct of a geothermal power plant — would make the otherwise scenic area aesthetially unattractive.

Why wait 7 years or more for approval — and then have to suffer through the inevitable protests and lawsuits — to build a power plant in California, when Texas will do it in 2 years?

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