We all know that when California's Legislature passed the ill-conceived energy deregulation bill in 1996, the stated goal was to reduce electricity prices over time by increasing competition among suppliers.
Obviously, it didn't turn out that way.
So far, most observers have been casting blame for the current predicament on the provisions of the law that allowed the utilities to selectively divest themselves of power plants without any assurance they could buy power back from those plants at reasonable prices.
But there was another, lesser-known part of the legislation that had at least an equally adverse impact. The final bill also included a provision that created a special new tax levied on any business that wanted to generate their own power.
The politicians hoped to disguise the new tax by not calling it a tax. Instead, they opted for a more benign-sounding Orwellian phrase, calling it a Competitive Transition Charge, or CTC.
The CTC was imposed on any business in the state that took itself off the power grid after 1995 by buying its own power-generating equipment. At the time, that mostly meant natural gas-powered co-generation units that can supply a single building, business or small community with electricity and heat. But it also applied to any other power-generating equipment.
"The CTC is not a tax," one legislative staffer told me with a perfectly straight face at the time. "It's a fee to create competition."
The rationale for the CTC was that the monopoly utilities had built power plants with the expectation of paying them off over many years with the help of a locked-in customer base. But when customers, particularly big customers, wanted to flee to other providers or use their own generators, the utilities convinced the Legislature something had to be done to make sure they would be able to pay off the power-plant building expenses they had already incurred.
The final legislation, which included the CTC, also allowed the largest consumers of electricity to negotiate preferred rates with the utilities while consumers and small businesses were supposed to get frozen rates at first and then scheduled mandatory rate decreases.
In truth, the CTC may be the biggest single blunder in the entire deregulation process because of the way it forestalled decentralized competition during a period when centralized power generators were allowed to jack up prices.
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