Interview with Carol Biedrzycki, Jerry Taylor
LEON HARRIS, CNN ANCHOR: Back to U.S. and to another topic. This issue: energy deregulation. In Texas, where they're known for doing things in a larger-than-life way, supporters of the deregulation plan that went into effect last week say it will be a big success in Texas. They're promising consumers there lower rates and better service. However, there are critics who are saying, remember this? California's deregulation attempt. That left consumers with power blackouts, and sky-high bills during the past two years. And the issue doesn't affect just California and Texas; 24 states and the District of Columbia have all passed some form of deregulation legislation. For some more perspective on the issue, we are joined now by two guests: Carol Biedrzycki is executive director of the Texas Ratepayers Organization to Save Energy, known as Texas ROSE. And joining us from Washington, D.C., Jerry Taylor. He is director of natural resource studies for the CATO institute. Thank you very much for coming and joining us today, folks.</s>JERRY TAYLOR, CATO INSTITUTE: Good afternoon.</s>HARRIS: Ms. Biedrzycki, since you are the one who has complaints about the implementation of this plan in Texas, let's start with you. What is wrong with this? Didn't Texas learn the lesson from California to avert the same problems California went through?</s>CAROL BIEDRZYCKI, TEXAS ROSE: Actually, I don't think we have averted the problems that are present in California. Some of the problems that arose in California were transmission constraints. We have transmission constraints here in Texas. Some of the problem in California were power supply. We may not have power supply problems now but we are likely to have them in the future. Also, there is no jurisdiction where deregulation has resulted in lower rates. It has not driven down prices the way it promised to.</s>HARRIS: Mr. Taylor, how about that? Let's start with that last point. It is a point I have heard made a number of times, particularly in our coverage of what happened in California. Is there any place where it has been proven that deregulation actually does lower rates for consumers in the first place?</s>TAYLOR: Well, nor is there any place where deregulation has actually occurred. What he have here is restructuring. We have some regulations which are lighter than they had been in the past, but we have other places in the law in Texas where the regulations are tougher. On balance, in fact, I would say it is more regulation than less. But in California, you have to remember, what happened there had almost nothing to do with the so-called deregulation. What happened was, you had a drought in the west, which knocked off about seven or eight nuclear power plants the equivalent thereof, of hydropower right out of the system. When you had this huge shock at the system and all that hydropower disappeared, power got scarce, prices went up, and you had rate controls in California which prevented the state from passing on those -- that increased scarcity in the price of that power to consumers and that's why you had blackouts. So, since Texas don't rely on hydropower I don't think Texas is in any real trouble.</s>HARRIS: The question, though, is about whether or not any of these deregulation plans, whether they have been complete ones or not, have actually resulted in lower prices for consumer, which is supposed to be the reason why these plans go into place in the first place?</s>TAYLOR: Actually, if you ask the economists who support these kinds of restructuring laws, what they would tell you is that most of the price gains would occur not because of increased competition or anything of the kind, but for two reasons. First of all, under a restructured system supposedly companies will be a little bit more careful about what they invest in. In the past, in the old regulatory regime, if a company invested in a white elephant nuclear power plant, they could pass on those costs to consumers forever. But in this new regime, if you build a power plant that isn't competitive, you eat the losses and the rate payers don't cover you for it. The second reason these restructuring plans were supposed to work is that they were supposed to lead power companies to charging real- time prices. In other words, electricity is very, very expensive during summer days. It is very, very cheap during the evening time and during the winter, but we don't see those prices under the normal regimes. The people that support this restructuring think that under these new regimes we will see real-time pricing. We haven't seen them yet which is why I don't think you have seen any real price declines.</s>HAYNES: All right, Ms. Biedrzycki, how about that? It sounds as though these concerns have been taken into account, and consumers in Texas won't be hurt. What do you think?</s>BIEDRZYCKI: Well, I think Mr. Taylor is wrong. First of all, real-time pricing is something that most consumers don't want. What real-time pricing means is that we will be paying the highest prices for electricity when we need it most, when it's hot in the summer, elderly people on fixed incomes and low-income families will have to decide between whether or not they want to use electricity or whether they want to buy food or medicine. In response to some other statements that Mr. Taylor made, I would simply say that when we engaged in debates here in this state about whether or not to restructure the industry, companies other than the electric utilizes made statements that they could beat the utility's prices by 30 to 40 percent. Within the past month rates have been decreased by 6 percent in Texas for the opening of market, competitors are saying that they can't afford to compete because the rates are too low. And they want the commission to raise it. What has happened here is that the industry has not delivered the goods that it has promised.</s>HAYNES: Are rate cops the answer? As I understand it, that is part of plan here, is it not?</s>BIEDRZYCKI: I'm sorry, I missed that.</s>HAYNES: Rate caps, is that part of the plan here? As I understand it, there's some idea that putting a cap on how high the rates can go will be put into effect there?</s>BIEDRZYCKI: No. Actually, there is no cap on how high rates can go. There is a rate that has been put into effect that will remain regulated called the price to beat, that competitors can try to beat. But a competitor can charge anything they want for electricity and there is a pass through for fuel costs.</s>HAYNES: Finally, Mr. Taylor, let me ask you this, one of the other things that came up in the debates about what was happening in California is that there still does not seem to be a clear answer as to whether or not competition actually works in a utility's market based upon what we have seen and again, not being able to say unequivocally that rates are lowered for consumers in a competitive market with utilities, where is the proof that this is actually a good idea?</s>TAYLOR: See, actually what they did in California, what they have done in 20-odd other states as you mentioned in the setup of the piece is that the generation market has been deregulated. Now you have got power plants here competing against power plants there. That has been deregulated but the retail and distribution end of electricity hasn't been deregulated. In fact, that's been -- there has been increased regulation on that side of business. It's clear that you can have competition between power plants. I mean after all, if you allow for competition between power plants the white elephant nuclear power plants that were built over the years and the other expensive power plant contractors would never survive in the marketplace and rate payers wouldn't be dinged for them. But on the other hand, there hasn't been a complete deregulation. In fact, I am no fan of what is going on in Texas. I wrote against what was going on in California because on balance, I think it's more regulation, not less.</s>HAYNES: Let me ask, on the way out, quickly, as I understand it, refresh my memory, part of problem and some of the fallout from the California episode was that power companies in Texas were making money hand over fist by jacking up the rates unjustifiably, it was found. Is that not what happened there and are those the same companies that are going to benefiting from this deregulation in Texas?</s>TAYLOR: It is a very complicated story. The economists who argue that there was price gauging going on do not argue that the entire price increase was made up or was concocted by pirateers or anything of the kind...</s>HARRIS: It wasn't just economists, it was also the government that said that in that case as well.</s>TAYLOR: Well, politicians will say whatever they need to say to get elected. The economist that they cited would tell you that about 10 percent of that price increase was suspicious. In other words, almost all the price hike that occurred happened because we had a drought which tore off a ton of hydropower from the California system. The question was, at the very top end of that spike, was all of that price legitimate or was some of it the result some sort of shenanigans? Even if there was some of that going on, it doesn't explain the entire price increase. There was a drought. There was a tremendous run-up in power prices. There was a scarcity that was not make believe. Power did go out because there wasn't enough to go around.</s>HARRIS: But even it was only a small amount, in percentage terms, it ended up being billions of dollars that hit the consumers. We are going to have to end it there. I am sorry folk. We will be watching to see how this all plays out. Carol Biedrzycki, thank you very much, and Jerry Taylor in Washington, thank you as well. 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