Power To The People?

California's problems of acute electric power shortages, with rolling blackouts, should remind us of the apparent disconnect among those who want things and those who make things.

California is the fifth or sixth largest economy in the world. Its citizens want cheap, dependable electricity to run homes and businesses. In part, the power problem in California stems from decisions made awhile back that let the nuisance of actually making electricity fall on others outside the state. Then, the state's leaders decided to mess with some fundamental economic principles—primarily those of supply and demand—in a fairly gutless move to cajole the electorate by limiting consumer electric rates.

Problem was, these legislators pretty much ignored the wholesale side of the equation. To supply the ever-increasing demand for power in the state with generating capacity too small to do the job, the state's power companies must purchase more electricity from other generating sources. That's fine except that many of these sources are strapped for capacity too. So it's become a bidding war for finite kWs. Supply and demand kicks in, and the wholesale cost of electricity goes through the roof. In most businesses, these costs would pass to the customer. However in California, it's currently illegal to pass those costs on to the consumer. Consequently, some of the state's power companies are on the verge of bankruptcy, so it's more difficult for them to buy more power. Ultimately, blackouts and shortages are likely to continue and get worse. It's unfortunate many innocent people are suffering for the lack of vision, understanding and courage of California's leaders.

In this current power crisis, once again California may represent a bellwether for the nation as a whole. Generally it's harmless fads or fashion that migrate east from the Golden State. Who can forget pogs? The current West Coast problems should send a very loud wake-up call to the rest of the country. California has clearly shown how not to deregulate the power industry. It has also demonstrated that somewhere there has to be a pipeline or slag heap, a cooling tower or a hydro-dam. No electric plants, no electricity. You can own and control power resources, and hence your own destiny, or pay others and trust them to perform that for you.

One point, though. No OEM I know outsources its most proprietary components. A lesson for the world's largest economy, perhaps?