LEGISLATURE SHOULD LEARN FROM CALIFORNIA’S OVER-REGULATION OF THE UTILITY INDUSTRY
SOURCE: Representative Tom Feeney, 
Speaker of the Florida House of Representatives

February 1, 2001

In the wake of California’s ongoing power troubles, some critics have voiced their adverse opinions towards electric deregulation. I agree with the basic premise that Florida needs to take a closer look at the problems occurring in California, however while we carefully consider deregulation proposals that will maintain an affordable and reliable electric supply for Florida, our state should not be paralyzed from looking at electric deregulation as an option because of the regulatory scheme adopted by California.

California’s "deregulation" model was not "deregulation" but "hyper-over-regulation;" an example of what happens when government attempts to mandate their version of competition with strict price controls and rigid regulation. It is also a great example of what happens when government ignores the basic laws of economics. Economics has taught us that business must be free to make decisions on how best to compete, in order that supply and demand for a product will regulate prices, improve quality of services, and result in what Adam Smith called in 1776, the benefits of the "invisible hand."

The California model was a new regulatory regime that destroyed the supply and demand balance. The net impact of price controls in California was that as demand dramatically increased, and utility companies had to buy power at higher prices while selling it to consumers at the regulated rate, California prohibited incumbent companies from selling power to customers unless they stopped producing electricity for themselves. It also told other electric producers that any energy sold to California must be sold through government cooperatives, and their business could be terminated completely on a year-to- year basis. In other words, they erected unreasonable barriers to new energy supply sources.

The resulting failure of California’s electric deregulation model was one caused by government design, not one brought on by industry demise. Additionally, while the Californian economy has boomed and the demand for electricity dramatically increased, pressure caused by strict environmental regulations and restrictive siting measures prohibited utility companies from building needed power plants.

According to the U.S. Department of Energy, 24 states and the District of Columbia have enacted some form of energy restructuring legislation or regulatory orders. Each state has its own unique features addressing generation capacity, industrial needs, consumer demand, stranded investment costs, stranded benefits, and environmental concerns. All of these elements of the electric structure must be taken into account when considering electric deregulation. Pennsylvania and Texas are states that have passed models of electric deregulation that could be helpful in assessing Florida’s needs.

The Florida Legislature must and will consider consumer protection as the primary goal in any plan to deregulate the electric industry. This is especially important in Florida with more than 88 % of the market being made-up of residential customers, and many of those customers being elderly.

Regulations suppressing the supply of needed energy have created California’s woes. Allowing for adequate growth in supply through construction of new power plants should be a top priority for the electric system in Florida. This additional power will be needed to fuel Florida’s homes and the future economy. Closely related to the issue of the supply of electricity is the protection of the investment of Florida’s existing utilities, an investment shared by many of Florida’s citizens for their retirement. The health of the electric industry is vitally necessary to maintain a vibrant economy and reliable electric supply.

Governor Bush has appointed the Energy 2020 Study Commission chaired by Walter Revell of Coral Gables to study Florida’s energy situation and make recommendations on Florida’s future energy needs and how best to meet those needs. I look forward to reading today’s report by the commission.

In the meantime, we should not foreclose electric deregulation because of California’s regulatory failures and ignorance of basic principals of free markets. We need to learn from them. Any major undertaking such as deregulation of the electric industry must be done deliberatively. Florida’s economic well being for its citizens and businesses depend on it.

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