I was just listening to the radio when an advertisement from PG&E (NYSE: PCG) came on with tips about how to reduce your bill. This PG&E technician is supposed to be on vacation when he hears that it is hot back here in California. And he can’t stop thinking about all the things people could do to lower their bills. If only people knew that if they cut back running their pool pumps just two hours a day they could lower their bill by 20%! The ad concludes by recommending that you go to their website to find out ways to reduce your bill.
And it pissed me off. Why is PG&E, a stock I previously recommended, spending advertising dollars to tell their customers how to save money? Isn’t PG&E supposed to be in the business of making money for it’s shareholders?
All last week, major parts of Queens, New York, were without electricity following a failure of power that plunged much of the city into darkness amidst sweltering heat for more than a week.
For many, it was Ten Days of Hell. There were thousands who were without air conditioning, lights, refrigeration, internet connections, and, well, modern life generally.
Meanwhile, on the other side of the country, California residents are putting up with blackouts, threats of more blackouts, denunciations from politicians, and even death: 56 people so far. All because of a heat wave, and all because the structure of the industry is not designed for extremes.
Now, if markets were in charge, a heat wave would not be looked at as a problem but as an opportunity. Entrepreneurs would be swarming to meet demand, just as they do in every other sector that is controlled by markets. The power companies would be praying for heat waves!
After all, do shoe manufacturers see a massive increase in footwear demand as a problem? Do fast food companies see lunchtime munchies as a terrible threat?
Just who is in charge of getting electricity to residents? A public utility, which, in the absurd American lexicon, means ‘state run’ and ‘state managed’, perhaps with a veneer of private trappings.
All of centralization and cartelization began nearly a century ago, as Robert Bradley points out in Energy: The Master Resource, when industry leaders obtained what was known as a regulatory covenant. They received franchise protection from market competition in exchange for which they agreed to price controls based on a cost plus formula – a formula that survives to this day.
He concludes by recommending Robert Bradley’s book Energy: The Master Resource. I just did a search and discovered that the book is available for free, at the above link, at the Institute for Energy Research (IER) founded by none other than Robert Bradley himself. Here’s what Richard Bilas, President of California’s Public Utilities Commission from 1998-2000 had to say about it:
California’s energy problems could have been addressd much more effectively had state officials read and understood the lessons presented in this brief, well written treatise.
A few months ago I had the pleasure of watching the excellent movie about Enron, Enron: The Smartest Guys in the Room, which got me interested in the subject of electricity in this country. What exactly caused California’s 2000-01 electricity crisis? Well, I intend to try and find out. I’ll keep you updated.