The electric power deregulation debacle in California is going to be the last straw for many processors. Arizona and Nevada should prepare now for an exodus of manufacturers from the Golden State.
Never mind the reasons. Being forced to shut down because of lack of power is unacceptable, absent a natural disaster like a hurricane. Can you imagine this happening in a business-friendly state like Ohio?
California´s troubles may slow the trend toward utility deregulation in the United States, but the juggernaut will not stop. Maybe that´s too bad. Historically, there´s a good reason why utilities have been regulated by the government. They are monopolies.
Still, deregulation is a misnomer in this case. Regulation remains alive. Here´s what deregulation means today: California´s utilities, like others around the country, have convinced lawmakers to allow limited competition in exchange for less regulation of utility prices.
But what happens when customers lock into a long-term rate agreement, but fuel costs rise too fast to make those deals profitable? Is it acceptable for the utilities to raise rates or cut off power? Or should the suppliers face liquidation? The system must have a mechanism for adjusting rates on the fly, monitoring utilities´ financial health, and holding their feet to the fire to ensure that they live up to their agreements.
Over the long term, who is responsible for guaranteeing that customers will have adequate power? That job must fall to the state. A federal bailout is neither necessary nor fair.
The key to successful deregulation is to keep the right blend of competition and government supervision. California´s effort failed. When processors there finally recover from this storm, you can be sure many will be searching for higher ground. In the long run, this mistake will cost the state thousands of highly coveted manufacturing jobs.