Economics Professor Robert Michaels

Robert Michaels, professor of economics and an expert on the electrical industry, stands inside the university's switching station where electrical power is distributed throughout the campus. The substation was constructed in 1995 as part of the electrical/telecommunications infrastructure project.

With the high temperatures and rolling electricity outages California is experiencing, Dateline offers its readers an opportunity to revisit a Sept. 25, 2003 Q&A with CSUF economics professor Robert Michaels, an expert on the electrical industry.

Faculty Q&A
Electricity Woes Continue to Dog Sunshine State

BY PAMELA MCLAREN

With the recent power outages on the East Coast reminding Californians of the 2001 power crisis, Dateline turned to Robert Michaels, professor of economics, to find out if the state has learned anything from the rolling blackouts of two years ago.
     
Michaels has served as an energy consultant and authored numerous articles on the electricity and natural gas industries. He's testified before the California Public Utilities Commission, as well as the U.S. House of Representatives Subcommittee on Energy and Power.

Q.    Briefly, what was the difference between what occurred on the East Coast and what happened two years ago in California?

A.    Our situation was quite different from that in the East. The outages we had were controlled - so-called rolling outages that were for short, predictable periods of time. In the East it was a complete system failure. Hearings on the cause of that failure began earlier this month.

In 2001, California had power, but transmission was inadequate. The connections between the northern half of the state and the south were too weak. Everyone knew that the crisis was coming. The signs were all there and everyone knew where the outages were most likely to occur.
     
Until recently, California has not built any major new power plants in more than 20 years. As we grew, we became more dependent on power markets. Hence the need for those transmission lines.

Q.    Was deregulation to blame?

A.    No. The state's deregulation law was a political compromise that disregarded the basic economics of the industry. Deregulation replaces utilities with markets, but California's problems were inadequate supply, growing demand and bottlenecked transmission. For its mistakes, California now has a legacy of high prices, but elsewhere markets are functioning well. Nationally, the real price of delivered power has fallen nearly 30 percent in the last 10 years, and we cn credit a lot of that to the market. Other people have choices and are using them - 25 percent of all the households in Pittsburgh have found better bargains than their old utility.

Q.    Could the situation happen again?

A.    Do the math. In 1975 the U.S. spent $5 billion on high-voltage transmission. Last year, it was down to $2 billion while electrical use has doubled. I'm not very hopeful because no one in Washington really wants to face the big issue.

State governments authorize the construction of new lines and the paths they can take. They have no desire to transfer that control to Washington despite change in the industry. The Federal Power Act of 1935 left authority to that estates, since most utilities at the time were small, self-contained systems and little power crossed state lines. Now most of the power that matters does. As we speak, power is arriving here from South Dakota, Northern Alberta and Baja California.

I prefer local control for those activities that affect only local interests. But electrical flows between California and Arizona affect power costs everywhere in the west. A state that blocks new lines imposes costs on residents of other states. Locals should have a say over transmission, but all too often they abuse environmental law to protect their own interests. A nation that has not built any major transmission since 1995 needs a federal backstop with eminent domain powers. And delay feeds on delay. The Valley-Rainbow line in San Diego County has just seen its 10th year of planning and permitting, and over the interim new towns and new protestors have sprung up in its path.
     
The federal government controls the siting of interstate gas pipelines and there have been no comparable problems in delivering it.

Q.    Can this be changed?

A.    State electricity regulation in effect allows governments to tax and subsidize different power users and environmental interests without the need for legislation. State regulators have lots of friends in Congress and my bet is that the emerging energy bill will not make the needed changes. But without those changes, all the legislation in the world will add very few new wires to the system.